PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK

6-K 1 u93034e6vk.htm PT TELEKOMUNIKASI INDONESIA PT TELEKOMUNIKASI INDONESIA PAGEBREAK

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13 a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May , 2007

Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA

(Translation of registrants name into English)

Jalan Japati No. 1 Bandung-40133 INDONESIA

(Address of principal executive office)

[Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F Form 20-F þ Form 40-F o

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 Yes o No þ

[If yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

	Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA
		(Registrant)
Date May 25, 2007	By	/s/ Harsya Denny Suryo
		(Signature)
		Harsya Denny Suryo
		Vice President Investor Relation & Corporate Secretary

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2006, AND FOR YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

	Notes	2005 — Rp	2006 — Rp	US$ (Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	2c,2f,6,46	5,374,684	8,315,836	923,982
Temporary investments	2c,2g,46	22,064	84,492	9,388
Trade receivables	2c,2h,7,46
Related parties net of allowance for doubtful
accounts of Rp84,275 million in 2005
and Rp85,053 million in 2006		530,370	520,689	57,854
Third parties net of allowance for doubtful
accounts of Rp601,393 million in 2005
and Rp699,736 million in 2006		3,047,539	3,196,588	355,176
Other receivables net of allowance for
doubtful accounts of Rp4,402 million in 2005
and Rp1,685 million in 2006	2c,2h,46	153,247	147,735	16,415
Inventories net of allowance for obsolescence of
Rp48,347 million in 2005 and Rp48,098
million in 2006	2i,8	220,327	213,329	23,703
Prepaid expenses	2c,2j,9,46	777,869	1,073,329	119,259
Claim for tax refund	40a		359,582	39,954
Prepaid taxes	40b	18,913	2,390	266
Other current assets	2c,10,46	159,537	6,822	758
Total Current Assets		10,304,550	13,920,792	1,546,755
NON-CURRENT ASSETS
Long-term investments net	2g,11	101,400	89,197	9,911
Property, plant and equipment net of accumulated
depreciation of Rp37,092,663 million in 2005
and Rp45,043,380 million in 2006	2k,2l,12	45,643,243	54,267,060	6,029,673
Property, plant and equipment under revenue-
sharing arrangements net of accumulated
depreciation of Rp458,234 million in 2005
and Rp493,381 million in 2006	2m,13,49	549,405	965,632	107,292
Prepaid pension benefit cost	2r,43c	640	103	11
Advances and other non-current assets	2c,2k,14,46	946,037	1,454,283	161,587
Goodwill and other intangible assets net of
accumulated amortization of Rp2,764,187
million in 2005 and Rp3,708,590 million in 2006	2x,5,15	4,493,272	4,436,605	492,956
Escrow accounts	2c,16,46	132,497	2,073	230
Total Non-current Assets		51,866,494	61,214,953	6,801,660
TOTAL ASSETS		62,171,044	75,135,745	8,348,415

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued) AS OF DECEMBER 31, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

	Notes	2005 — Rp	Rp		US$ (Note 3)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade payables	2c,17,46
Related parties		1,014,389		1,116,496		124,055
Third parties		4,281,285		5,801,457		644,606
Other payables		6,677		9,219		1,024
Taxes payable	2s,40c	2,469,765		2,569,002		285,446
Dividends payable		3,276		1,380		153
Accrued expenses	2c,18,46	1,521,247		3,475,698		386,189
Unearned income	19	1,592,718		2,037,772		226,419
Advances from customers and suppliers		223,086		161,262		17,918
Short-term bank loans	2c,20,46	173,800		687,990		76,443
Current maturities of long-term liabilities	2c,21,46	2,226,925		4,675,409		519,490
Total Current Liabilities		13,513,168		20,535,685		2,281,743
NON-CURRENT LIABILITIES
Deferred tax liabilities net	2s,40g	2,391,810		2,665,397		296,155
Unearned income on revenue-sharing arrangements	2m,13,49	425,484		817,174		90,797
Unearned initial investor payments under joint
operation scheme	2n,48	7,311
Accrued long service awards	2c,2r,44,46	524,524		596,325		66,258
Accrued post-retirement health care benefits	2c,2r,45,46	3,048,021		2,945,728		327,303
Accrued pension and other post-retirement benefits costs	2r,43	1,330,664		1,070,622		118,958
Long-term liabilities net of current maturities
Obligations under capital leases	2l,12	235,537		217,108		24,123
Two-step loans related party	2c,22,46	4,760,199		4,006,935		445,215
Notes and bonds	23	1,456,669
Bank loans	2c,24,46	1,752,104		2,487,913		276,435
Deferred consideration for business combinations	25	3,127,959		3,537,082		393,009
Total Non-current Liabilities		19,060,282		18,344,284		2,038,253
MINORITY INTEREST	26	6,305,193		8,187,087		909,676
STOCKHOLDERS EQUITY
Capital stock Rp250 par value per Series A
Dwiwarna share and Series B share
Authorized one Series A Dwiwarna share and
79,999,999,999 Series B shares
Issued and fully paid one Series A Dwiwarna share
and 20,159,999,279 Series B shares	1b,27	5,040,000		5,040,000		560,000
Additional paid-in capital	28	1,073,333		1,073,333		119,259
Treasury stock (118,376,500 shares)	2p,29			(952,211	)	(105,801	)
Difference in value of restructuring transactions
between entities under common control	30	90,000		180,000		20,000
Difference due to change of equity in associated
companies	2g	385,595		385,595		42,844
Unrealized holding gain (loss) from available-for-sale securities	2g	(748	)	8,865		985
Translation adjustment	2g	233,253		227,669		25,297
Retained earnings
Appropriated		1,803,397		1,803,397		200,377
Unappropriated		14,667,571		20,302,041		2,255,782
Total Stockholders Equity		23,292,401		28,068,689		3,118,743
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		62,171,044		75,135,745		8,348,415

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars, except per share and per ADS data)

	Notes	2004 — Rp	Rp		Rp		US$ (Note 3)
OPERATING REVENUES
Telephone	2q,31
Fixed lines		10,645,021		10,781,252		10,979,033		1,219,893
Cellular		10,421,298		14,570,958		20,622,647		2,291,405
Interconnection net	2q,32,46	6,187,981		7,742,084		8,681,461		964,607
Joint operation schemes	2n,33,48	656,614		588,647		489,414		54,379
Data and Internet	2q,34	4,808,742		6,934,324		9,065,187		1,007,243
Network	2q,35,46	654,309		586,636		718,738		79,860
Revenue-sharing arrangements	2m,36,49	280,576		302,282		415,477		46,163
Other telecommunications services		293,225		301,001		322,051		35,783
Total Operating Revenues		33,947,766		41,807,184		51,294,008		5,699,333
OPERATING EXPENSES
Personnel	37	4,909,965		6,563,047		8,513,765		945,974
Depreciation	2k,2l,2m,12,13,14	6,438,557		7,570,739		9,178,343		1,019,816
Write-down of assets	2k,12			616,768
Loss on procurement commitments	12			79,359
Operations, maintenance and telecommunication
services	38,46	4,529,587		5,916,341		7,495,728		832,859
General and administrative	39	2,599,847		2,763,951		3,271,427		363,492
Marketing		881,930		1,126,229		1,241,504		137,946
Total Operating Expenses		19,359,886		24,636,434		29,700,767		3,300,087
OPERATING INCOME		14,587,880		17,170,750		21,593,241		2,399,246
OTHER INCOME (EXPENSES)
Interest income	46	317,941		344,686		654,984		72,776
Interest expense	46	(1,270,136	)	(1,177,268	)	(1,286,354	)	(142,928	)
Gain (loss) on foreign exchange net	2e	(1,220,760	)	(516,807	)	836,328		92,925
Equity in net income (loss) of associated companies	2g,11	3,420		10,879		(6,619	)	(735	)
Others net		331,050		409,184		202,025		22,447
Other income (expenses) net		(1,838,485	)	(929,326	)	400,364		44,485
INCOME BEFORE TAX		12,749,395		16,241,424		21,993,605		2,443,731
TAX (EXPENSE) BENEFIT	2s,40d
Current tax		(4,267,111	)	(5,719,644	)	(7,097,202	)	(788,578	)
Deferred tax		88,585		535,757		57,275		6,364
		(4,178,526	)	(5,183,887	)	(7,039,927	)	(782,214	)
INCOME BEFORE MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES		8,570,869		11,057,537		14,953,678		1,661,517
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES net	26	(1,956,301	)	(3,063,971	)	(3,948,101	)	(438,678	)
NET INCOME		6,614,568		7,993,566		11,005,577		1,222,839
BASIC EARNINGS PER SHARE	2t,41
Net income per share		328.10		396.51		547.15		60.79
Net income per ADS
(40 Series B shares per ADS)		13,124.14		15,860.25		21,886.00		2,431.78

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T.TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change	Unrealized
			Additional	between entities	of equity	holding gain					Total
		Capital	paid-in	under common	in associated	on available-for-sale	Translation	Retained earnings			stockholders
Description	Notes	stock	capital	control	companies	securities	adjustment	Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp	Rp	Rp		Rp
Balance as of January 1, 2004		5,040,000	1,073,333	(7,288,271	)	385,595		224,232	1,559,068	13,700,255		14,694,212
Unrealized holding gain on
available-for-sale securities	2g						884					884
Foreign currency translation of associated company	2g							5,363				5,363
Resolved during the Annual General Meeting
of the Stockholders on July 30, 2004
Declaration of cash dividends	2w,42									(3,043,614	)	(3,043,614	)
Appropriation for general reserve	42								121,745	(121,745	)
Declaration of interim cash dividends	2w,42									(143,377	)	(143,377	)
Net income for the year										6,614,568		6,614,568
Balance as of December 31, 2004		5,040,000	1,073,333	(7,288,271	)	385,595	884	229,595	1,680,813	17,006,087		18,128,036

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (continued) FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change	Unrealized
			Additional	between entities	of equity	holding gain (loss)						Total
		Capital	paid-in	under common	in associated	on available-for-sale		Translation	Retained earnings			stockholders
Description	Notes	stock	capital	control	companies	securities		adjustment	Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp		Rp	Rp	Rp		Rp
Balance as of January 1, 2005		5,040,000	1,073,333	(7,288,271	)	385,595	884		229,595	1,680,813	17,006,087		18,128,036
Change in accounting policy for restructuring
transactions between entities under
common control	4,30			7,288,271							(7,288,271	)
Unrealized
holding loss on available-for-sale securities	2g						(1,632	)					(1,632	)
Foreign currency translation of associated company	2g,11								3,658				3,658
Compensation for early termination of
exclusive rights	30			90,000									90,000
Resolved during the Annual General Meeting
of the Stockholders on June 24, 2005
Declaration of cash dividends	2w,42										(2,921,227	)	(2,921,227	)
Appropriation for general reserve	42									122,584	(122,584	)
Net income for the year											7,993,566		7,993,566
Balance as of December 31, 2005		5,040,000	1,073,333	90,000		385,595	(748	)	233,253	1,803,397	14,667,571		23,292,401

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (continued) FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah)


					value of
					restructuring	Difference
					transactions	due to change	Unrealized
			Additional		between entities	of equity	holding gain (loss)							Total
		Capital	paid-in		under common	in associated	on available-for-sale		Translation		Retained earnings			stockholders
Description	Notes	stock	capital	Treasury stock	control	companies	securities		adjustment		Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp		Rp		Rp	Rp		Rp
Balance as of January 1, 2006		5,040,000	1,073,333			90,000	385,595	(748	)	233,253		1,803,397	14,667,571		23,292,401
Unrealized holding gain on
available-for-sale securities	2g							9,613							9,613
Foreign currency translation of associated company	2g,11									(5,584	)				(5,584	)
Compensation for early termination of
exclusive rights	30					90,000									90,000
Resolved during the Annual General Meeting
of the Stockholders on June 30, 2006
Declaration of cash dividends	2w,42												(4,400,090	)	(4,400,090	)
Payment of interim cash dividends	2w,42												(971,017	)	(971,017	)
Treasury stock acquired at cost	29			(952,211	)										(952,211	)
Net income for the year													11,005,577		11,005,577
Balance as of December 31, 2006		5,040,000	1,073,333	(952,211	)	180,000	385,595	8,865		227,669		1,803,397	20,302,041		28,068,689

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

Rp		Rp		Rp		US$ (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from operating revenues
Telephone
Fixed lines	10,084,558		10,668,915		10,673,901		1,185,989
Cellular	10,497,763		14,825,437		20,842,406		2,315,823
Interconnection net	5,766,444		7,403,322		8,655,917		961,768
Joint operation schemes	547,487		614,652		596,423		66,269
Data and Internet	4,973,559		6,952,323		8,914,019		990,447
Other services	1,689,941		1,445,668		1,285,275		142,808
Total cash receipts from operating revenues	33,559,752		41,910,317		50,967,941		5,663,104
Cash payments for operating expenses	(12,270,643	)	(14,954,742	)	(16,465,320	)	(1,829,480	)
Cash receipt (refund) from/to customers	(78,028	)	(55,343	)	(57,580	)	(6,398	)
Cash generated from operations	21,211,081		26,900,232		34,445,041		3,827,226
Interest received	321,677		341,848		642,959		71,440
Income tax paid	(4,132,359	)	(4,938,916	)	(7,175,681	)	(797,298	)
Interest paid	(1,348,919	)	(1,200,484	)	(1,217,131	)	(135,237	)
Net Cash Provided by Operating Activities	16,051,480		21,102,680		26,695,188		2,966,131
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of temporary investments and
maturity of time deposits	285,264		227,633		46,081		5,120
Purchase of temporary investments
and placements in time deposits	(404,268	)	(226,054	)	(98,896	)	(10,988	)
Proceeds from sale of property, plant and equipment	67,196		84,621		17,269		1,919
Proceeds from insurance claim			27,580
Acquisition of property, plant and equipment	(8,568,862	)	(12,106,930	)	(15,900,628	)	(1,766,736	)
Increase in
advances for the purchase of property, plant and equipment	(1,063,382	)	(212,187	)	(293,920	)	(32,658	)
Decrease in advances and others	123,026		874		38,395		4,266
Business combinations, net of cash (paid) acquired	(27,797	)	(4,000	)	143,648		15,961
Acquisition of intangible assets					(436,000	)	(48,444	)
Proceeds from sale of long-term investments					22,561		2,507
Cash dividends received					382		42
Acquisition of long-term investments	(9,290	)	(4,250	)
Net Cash Used in Investing Activities	(9,598,113	)	(12,212,713	)	(16,461,108	)	(1,829,011	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid	(3,129,225	)	(2,980,640	)	(5,371,102	)	(596,789	)
Cash dividends paid to minority shareholders of subsidiaries	(682,366	)	(1,694,261	)	(2,067,696	)	(229,744	)
Increase in escrow accounts	(1,341,546	)	(96,216	)	(2,073	)	(230	)
Proceeds from short-term borrowings	1,062,183		739,153		1,020,000		113,333
Repayments of short-term borrowings			(1,733,862	)	(507,133	)	(56,348	)
Payments for debt issuance cost	(2,394	)
Proceeds from Medium-term Notes	1,080,000
Repayments of Medium-term Notes			(470,000	)	(145,000	)	(16,111	)
Redemption of Telkomsels notes	(504,101	)	(780,565	)
Proceeds from long-term borrowings	2,386,748		569,995		2,532,313		281,368
Repayments of long-term borrowings	(5,734,156	)	(1,723,126	)	(1,674,516	)	(186,057	)
Payment for purchase of treasury stock					(952,211	)	(105,801	)
Repayments of promissory notes	(40,008	)	(164,186	)	(201,307	)	(22,368	)
Repayments of obligations under capital leases			(5,643	)	(14,095	)	(1,566	)
Net Cash Used in Financing Activities	(6,904,865	)	(8,339,351	)	(7,382,820	)	(820,313	)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS	(451,498	)	550,616		2,851,260		316,807
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS	213,149		(32,055	)	89,892		9,988
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR	5,094,472		4,856,123		5,374,684		597,187
CASH AND CASH EQUIVALENTS AT END OF YEAR	4,856,123		5,374,684		8,315,836		923,982

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

Rp	Rp	Rp	US$ (Note 3)
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activities:
Payment of insurance premium through
the incurrence of long-term debt	11,658
Acquisition of minority interest through the issuance
of Promissory Notes	126,692
Acquisition of business through the incurrence
of long-term liability	3,257,566		1,770,925	196,769
Acquisition of property, plant and equipment
through capital leases		257,380	8,440	938
Exchange of property, plant and equipment			440,358	48,929
Acquisition of property, plant and equipment
through incurrence of payable	3,029,489	3,786,014	4,540,200	504,467
Acquisition of property, plant and equipment
through Revenue-Sharing Arrangements	330,633	201,833	543,651	60,406

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2005 AND 2006, AND FOR YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL

| a. |
| --- |
| Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk (the Company) was
originally part of Post en Telegraafdienst, which was established in 1884 under the
framework of Decree No. 7 dated March 27, 1884 of the Governor General of the Dutch Indies
and published in State Gazette No. 52 dated April 3, 1884. |
| In 1991, based on Government Regulation No. 25 year 1991, the status of the Company was
changed into a state-owned limited liability corporation (Persero). The Company was
established based on notarial deed No. 128 dated September 24, 1991 of Imas Fatimah, S.H.
The deed of establishment was approved by the Minister of Justice of the Republic of
Indonesia in his decision letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991, and
was published in State Gazette of the Republic of Indonesia No. 5 dated January 17, 1992,
Supplement No. 210. The Articles of Association have been amended several times, the most
recent amendment based on notarial deed No. 4 dated April 6, 2006 of A. Partomuan Pohan,
S.H., LLM. and was published in State Gazette of the Republic of Indonesia No. 51 dated
June 27, 2006, Supplement No. 666, among others, to amend the directors and
commissioners authorities and responsibilities. |
| In accordance with Article 3 of its articles of association, the scope of the Companys
activities is as follows: |

| 1. | The Companys objective is to provide telecommunications and information
facilities and services, in accordance with prevailing regulations. |
| --- | --- |
| 2. | To achieve the above objective, the Company is involved in the following activities: |

| i. | Planning, building, providing, developing, operating, marketing
or selling, leasing and maintaining telecommunications and information networks
in accordance with prevailing regulations. |
| --- | --- |
| ii. | Planning, developing, providing, marketing or selling and
improving telecommunications and information services in accordance with
prevailing regulations. |
| iii. | Performing activities and other undertakings in connection with
the utilization and development of the Companys resources and optimizing the
utilization of the Companys property, plant and equipment, information systems,
education and training, and repairs and maintenance facilities. |

| The Companys head office is located at Jalan Japati No. 1, Bandung, West Java. |
| --- |
| The Companys business in the provision of domestic telecommunications services including
telephone, telex, telegram, satellite, leased lines, electronic mail, mobile communication
and cellular services. In order to accelerate the construction of telecommunications
facilities, to make the Company a world-class operator, and to increase the technology as
well as the knowledge and skills of its employees, in 1995, the Company entered into
agreements with investors to develop, manage and operate telecommunications facilities in
five of the Companys seven regional divisions under Joint Operation Schemes (known as
Kerja Sama Operasi or KSO) (Note 5). |

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GENERAL (continued)

| a. |
| --- |
| Pursuant to Law No. 3/1989 on Telecommunications which took effect on April 1, 1989,
Indonesian legal entities are allowed to provide basic telecommunications services in
cooperation with the Company as the domestic telecommunications organizing body (or badan
penyelenggara). Government Regulation No. 8/1993, concerning the provision of
telecommunications services, further regulates that cooperation to provide basic
telecommunications services can be in the form of joint venture, joint operation or
contract management and that the entities cooperating with the domestic telecommunications
organizing body must use the organizing bodys telecommunications networks. If the
telecommunications networks are not available, the Government Regulation requires that the
cooperation be in the form of a joint venture that is capable of constructing the
necessary networks. |
| The Minister of Tourism, Post and Telecommunications of the Republic of Indonesia
(MTPT), through two decision letters both dated August 14, 1995, reaffirmed the status
of the Company as the organizing body for the provision of domestic telecommunications
services. |
| Further, effective from January 1, 1996, the Company was granted the exclusive right to
provide local wireline and fixed wireless services for a minimum period of 15 years and
the exclusive right to provide domestic long-distance telecommunications services for a
minimum period of 10 years. The exclusive rights also applied to telecommunications
services provided for and on behalf of the Company through a KSO. This grant of rights
did not affect the Companys right to provide other domestic telecommunications services. |
| Under Law No. 36/1999 on Telecommunications, which took effect from September 2000,
telecommunications activities cover: |

i.	Telecommunications networks
ii.	Telecommunications services
iii.	Special telecommunications

National state-owned companies, regional state-owned companies, privately-owned companies and cooperatives are allowed to provide telecommunications networks and services. Special telecommunications can be provided by individuals, government agencies and legal entities other than telecommunications networks and service providers.

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GENERAL (continued)

| a. |
| --- |
| Under Law No. 36/1999, activities that result in monopolistic practices and unfair
competition are prohibited. In connection with this law, Government Regulation No. 52/2000
was issued, which provides that interconnection fees shall be charged to originating
telecommunications network operators where telecommunications service is provided by two or
more telecommunications network operators. |
| Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2000 from the Director
General of Post and Telecommunications and the correction thereto No. 1718/UM/VIII/2000
dated August 2, 2000, the period of exclusive rights granted to the Company to provide
local and domestic long-distance fixed-line telecommunications services, which initially
would expire in December 2010 and December 2005, respectively, were shortened to expire in
August 2002 and August 2003, respectively. In return, the Government was required to pay
compensation to the Company (Note 30). |
| Based on a press release from the Coordinating Minister of Economics dated July 31, 2002,
the Government decided to terminate the Companys exclusive rights as a network provider
for local and long-distance services with effect from August 1, 2002. On August 1, 2002, PT
Indonesian Satellite Corporation Tbk (Indosat) was granted a license to provide local and
long-distance telecommunications services. |
| On May 13, 2004, pursuant to the Ministry of Communications Decree No. KP. 162/2004, the
Company was granted a commercial license to provide International Direct Dialing (IDD)
services. |
| Based on the resolution of the Annual General Meeting of Stockholders, the minutes of which
have been summarized by deed No. 36 dated June 24, 2005 of A. Partomuan Pohan, S.H., LLM.,
the composition of the Companys Board of Commissioners and Board of Directors as of
December 31, 2005 and 2006 was as follows: |

President Commissioner	:	Tanri Abeng
Commissioner	:	Anggito Abimanyu
Commissioner	:	Gatot Trihargo
Independent Commissioner	:	Arif Arryman
Independent Commissioner	:	Petrus Sartono
President Director	:	Arwin Rasyid
Vice President Director / Chief Operating Officer	:	Garuda Sugardo
Director of Finance	:	Rinaldi Firmansyah
Director of Network and Solution	:	Abdul Haris
Director of Enterprise and Wholesale	:	Arief Yahya
Director of Human Resources	:	John Welly
Director of Consumer	:	Guntur Siregar

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GENERAL (continued)

| a. |
| --- |
| Subsequently, based on Extraordinary General Meeting of Stockholders, the minutes of which
have been summarized by deed No. 45/II/2007 dated February 28, 2007 of A. Partomuan Pohan,
S.H., LLM., the composition of the Companys Board of Commissioners and Board of Directors
was as follows: |

President Commissioner	:	Tanri Abeng
Commissioner	:	Anggito Abimanyu
Commissioner	:	Gatot Trihargo
Independent Commissioner	:	Arif Arryman
Independent Commissioner	:	Petrus Sartono
President Director	:	Rinaldi Firmansyah
Director of Finance	:	Sudiro Asno
Director of Network and Solution	:	I Nyoman Gede Wiryanata
Director of Enterprise and Wholesale	:	Arief Yahya
Director of Human Capital and General Affairs	:	Faisal Syam
Director of Consumer	:	Ermady Dahlan
Chief Information Technology Officer	:	Indra Utoyo
Director of Compliance and Risk Management	:	Prasetio

| | As of December 31, 2005 and 2006, the Company had 28,179 employees and 27,658 employees,
respectively, while the subsidiaries had 5,825 employees and 6,363 employees,
respectively. |
| --- | --- |
| b. | Public offering of shares of the Company |
| | The Companys total number of shares immediately prior to its initial public offering was
8,400,000,000, which consisted of 8,399,999,999 Series B shares and 1 Series A Dwiwarna
share, all of which were owned by the Government of the Republic of Indonesia (the
Government). On November 14, 1995, the Government sold the Companys shares through an
initial public offering on the Jakarta Stock Exchange and Surabaya Stock Exchange. The
shares offered consisted of 933,333,000 new Series B shares and 233,334,000 Series B
shares owned by the Government. A share offering was also conducted on the New York Stock
Exchange (NYSE) and London Stock Exchange (LSE) for 700,000,000 Series B shares owned
by the Government, which were converted into 35,000,000 American Depositary Shares (ADS).
Each ADS represented 20 Series B shares at that time. |
| | In December 1996, the Government completed a block sale of 388,000,000 Series B shares,
and later in 1997, distributed 2,670,300 Series B shares as an incentive to stockholders
who did not sell their shares within one year from the date of the initial public
offering. In May 1999, the Government sold 898,000,000 Series B shares. |
| | Under Law No. 1/1995 on Limited Liability Companies, the minimum total par value of the
Companys issued shares of capital stock must be at least 25% of the total par value of
the Companys authorized capital stock, or in the Companys case Rp5,000,000 million. To
comply with the Law, it was resolved at the Annual General Meeting of Stockholders on
April 16, 1999 to increase the issued share capital by distribution of 746,666,640 bonus
shares through the capitalization of certain additional paid-in capital. The bonus shares
were distributed to the existing stockholders in August 1999. |

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GENERAL (continued)

| b. |
| --- |
| In December 2001, the Government conducted another block sale of 1,200,000,000 shares or
11.9% of the total outstanding Series B shares. In July 2002, the Government sold
312,000,000 shares or 3.1% of the total outstanding Series B shares. |
| On July 30, 2004, the Annual General Meeting of Stockholders, the minutes of which were
notarized by deed No. 26 dated July 30, 2004 of A. Partomuan Pohan, S.H., LLM., resolved
to decrease the par value of the Companys shares from Rp500 to Rp250 by means of a
2-for-1 stock split. The Series A Dwiwarna share with par value of Rp500 was split to one
Series A Dwiwarna share with par value of Rp250 and one Series B share with par value of
Rp250. As a result of the stock split, the number of the Companys authorized capital
stock increased from one Series A Dwiwarna share and 39,999,999,999 Series B shares to one
Series A Dwiwarna share and 79,999,999,999 Series B shares, and the number of the
Companys issued capital stock increased from one Series A Dwiwarna share and
10,079,999,639 Series B shares to one Series A Dwiwarna share and 20,159,999,279 Series B
shares. After the stock split, each ADS represented 40 Series B shares. |
| Based on the resolution of the Extraordinary General Meeting of Stockholders on December
21, 2005, the Stockholders authorized the plan to repurchase up to a maximum of 5% of the
Companys issued Series B shares for a total repurchase amount not exceeding Rp5,250,000
million. Up to May 24, 2007, the Company has repurchased 201,540,500 shares of the
Companys issued and outstanding Series B shares, representing approximately 1.0% of the
Companys issued and outstanding Series B shares, for a total repurchase amount of
Rp1,734,580 million, including the broker and custodian fees (Note 29). |
| As of December 31, 2006, all of the Companys Series B shares were listed on the Jakarta
Stock Exchange and Surabaya Stock Exchange and 37,187,806 ADS shares were listed on the
NYSE and LSE. |

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GENERAL (continued)

c.
The Company has consolidated the following direct subsidiaries in Indonesia which it
controls as a result of its majority ownership:

			Percentage of		Start of	Total Assets
			Ownership		Commercial	Before Eliminations
Subsidiaries	Domicile	Nature of Business	2005	2006	Operations	2005	2006
			%	%
PT Pramindo Ikat Nusantara	Medan	Telecommunications construction & services	100	100	1995	1,356,634	1,372,524
PT AriaWest International	Jakarta	Telecommunications	100	100	1995	1,127,785	806,542
PT Multimedia Nusantara	Jakarta	Multimedia	100	100	1998	53,738	94,187
PT Graha Sarana Duta	Jakarta	Real estate,
construction and
services	99.99	99.99	1982	101,910	134,840
PT Dayamitra Telekomunikasi	Jakarta	Telecommunications	100	100	1995	622,662	503,299
PT Indonusa Telemedia	Jakarta	Pay TV	96	96	1997	66,445	66,862
PT Telekomunikasi Selular	Jakarta	Telecommunications	65	65	1995	25,754,321	37,300,784
PT Napsindo Primatel Internasional	Jakarta	Telecommunications	60	60	1999	7,884	6,297
PT Infomedia Nusantara	Jakarta	Data and
information service	51	51	1984	376,160	437,028

The Company has also consolidated the following indirect subsidiaries:

				Ownership
				Percentage by		Start of
			Nature of	Subsidiaries		Commercial
Indirect Subsidiaries	Stockholders	Domicile	Business	2005	2006	Operations
				%	%
Telekomunikasi Selular Finance Limited	PT Telekomunikasi Selular	Mauritius	Finance	100	100	2002
Telkomsel Finance B.V.	PT Telekomunikasi Selular	Netherlands	Finance	100	100	2005
Aria West
International Finance B.V.	PT AriaWest International	Netherlands	Finance	100	100	1996
PT Balebat Dedikasi Prima	PT Infomedia Nusantara	Indonesia	Printing	51	65	2000
PT Finnet Indonesia	PT Multimedia Nusantara	Indonesia	Banking data and
communication		60	2006

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GENERAL (continued)

| c. |
| --- |
| PT Pramindo Ikat Nusantara (Pramindo) |
| Pramindo is the investor in KSO I, the joint operating scheme that provides
telecommunications services in Sumatra. On April 19, 2002, the Company entered into a
Conditional Sale and Purchase Agreement (CSPA) (as amended on August 1, 2002) to acquire
100% of the issued and paid-up share capital of Pramindo. The Company acquired control of
Pramindo on August 15, 2002, the date when the Company entered into a Stockholders Voting
Agreement pursuant to which the Company obtained the right to vote all Pramindos shares
and the right to nominate all the members of the Board of Directors and Board of
Commissioners of Pramindo (Note 5b). |
| PT AriaWest International (AWI) |
| AWI is the investor in KSO III, the joint operating scheme that provides telecommunication
services in West Java. On May 8, 2002, the Company entered into a Conditional Sale and
Purchase Agreement to acquire 100% of the issued and paid-up capital of AWI. The
acquisition was effective on July 31, 2003, the date when the Company entered into the
First Amendment to the Conditional Sale and Purchase Agreement with the stockholders of
AWI in which both parties agreed to the Companys acquisition of AWI (Note 5c). |
| On March 6, 2007, the name of PT Aria West International has been changed to PT
Telekomunikasi Indonesia International (Note 54b). |
| PT Multimedia Nusantara (Metra) |
| Metra is engaged in providing multimedia telecommunications services. |
| On July 21, 2005, the Annual General Meeting of Stockholders of Metra resolved to issue
additional share capital totaling Rp26,000 million to the Company. The Company paid the
entire amount on October 21, 2005. |
| PT Graha Sarana Duta (GSD) |
| GSD is currently engaged primarily in leasing of offices as well as providing building
management and maintenance services, civil consultant and developer. |
| On April 6, 2001, the Company acquired its 99.99% ownership interest in GSD from Koperasi
Mitra Duta and Dana Pensiun Bank Duta, for a purchase consideration of Rp119,000 million.
This acquisition resulted in goodwill of Rp106,348 million which was amortized over a
period of five years (Note 15). |

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GENERAL (continued)

| c. |
| --- |
| PT Dayamitra Telekomunikasi (Dayamitra) |
| Dayamitra is the investor in KSO VI, the joint operating scheme that provides
telecommunications services in Kalimantan. The Companys acquisition of a 90.32% ownership
interest in Dayamitra was effective on May 17, 2001, the date when the Deed of Share
Transfer was signed. The Company also entered into an Option Agreement to acquire the
remaining 9.68% interest from the selling stockholders. On December 14, 2004, the Company
exercised the option to acquire the remaining 9.68% outstanding shares of Dayamitra by
entering into a Sale and Purchase Agreement with TM Communications (HK) Ltd. (Note 5a). |
| PT Indonusa Telemedia (Indonusa) |
| Indonusa is engaged in providing pay television and content services. |
| On August 8, 2003, the Company increased its investment in Indonusa from 57.5% to 88.08%
through a share-swap agreement with PT Centralindo Pancasakti Cellular (CPSC) (Note
11c). |
| Pursuant to the extraordinary meeting of stockholders of Indonusa on October 29, 2003,
Indonusa agreed to convert its payable to the Company amounting to Rp13,500 million into
1,350,000 shares of Indonusa. Following such conversion, the Companys ownership in
Indonusa increased from 88.08% to 90.39%. |
| The Company purchased 5.29% of Indonusas shares from PT Megacell Media for Rp4,000
million, thereby increasing the Companys ownership interest from 90.39% to 95.68% after
the settlement of payment on November 22, 2005. |
| PT Telekomunikasi Selular (Telkomsel) |
| Telkomsel is engaged in providing telecommunications facilities and mobile cellular
services using Global System for Mobile Communication (GSM) technology on a nationwide
basis. |
| The Companys cross-ownership transaction with Indosat in 2001 increased the Companys
ownership interest in Telkomsel to 77.72% (Note 30). |
| On April 3, 2002, the Company entered into a Conditional Sale and Purchase Agreement with
Singapore Telecom Mobile Pte. Ltd. (Singtel). Pursuant to the agreement, the Company
sold 23,223 ordinary registered shares of Telkomsel, representing 12.72% of the issued and
paid-up capital of Telkomsel for a total consideration of US$429 million (equivalent to
Rp3,948,945 million). This transaction reduced the Companys ownership in Telkomsel from
77.72% to 65%. |
| Based on Decision Letter No.19/KEP/M.KOMINFO/2/2006 of the Minister of Communication and
Information Technology dated February 14, 2006, the Government granted Telkomsel an
IMT-2000 license in the 2.1 GHz frequency bandwidth for a ten year period (3G license),
extendable subject to evaluation (Note 15 and 51c). In September 2006, Telkomsel started
its commercial 3G service. |

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GENERAL (continued)

| c. |
| --- |
| PT Telekomunikasi Selular (Telkomsel) (continued) |
| Based on the Decision Letter No. 101/KEP/M.KOMINFO/10/2006 dated October 11, 2006 of the
Minister of Communication and Information Technology, Telkomsel operating licenses were
updated granting Telkomsel the rights to provide: |

| a. | Mobile telecommunication services with radio frequency bandwith in the 900
MHz and 1800 MHz bands; |
| --- | --- |
| b. | Mobile telecommunication services IMT-2000 with radio frequency bandwith in
the 2.1 GHz bands (3G); and |
| c. | Basic telecommunication services. |

| PT Napsindo Primatel Internasional (Napsindo) |
| --- |
| Napsindo is engaged in providing Network Access Point (NAP), Voice Over Data (VOD) and
other related services. |
| Based on the notarial deed No. 47 dated December 30, 2002 of H. Yunardi, S.H., the Company
purchased 28% of Napsindos shares from PT Info Asia Sukses Makmur Mandiri for US$4.9
million (equivalent to Rp43,620 million), thereby increasing the Companys ownership
interest from 32% to 60% after the settlement of payment on January 28, 2003. Starting
January 13, 2006 Napsindos operation has ceased. |
| PT Infomedia Nusantara (Infomedia) |
| Infomedia is engaged in providing telecommunications information services and other
information services in the form of print and electronic media. In 2002, Infomedia
established a new line of business to provide call center services. |
| Telekomunikasi Selular Finance Limited (TSFL) |
| Telkomsel has 100% direct ownership interest in TSFL, a company established in Mauritius
on April 22, 2002. TSFLs objective is to raise funds for the development of Telkomsels
business through the issuance of debenture stock, bonds, mortgages or any other
securities. |
| Telkomsel Finance B.V. (TFBV) |
| TFBV, a wholly owned subsidiary of Telkomsel, was established in Amsterdam, the
Netherlands, on February 7, 2005, for the purpose of borrowing, lending and raising funds,
including issuance of bonds, promissory notes or debt instruments. |
| Aria West International Finance B.V. (AWI BV) |
| AWI BV, a company established in the Netherlands, is a wholly owned subsidiary of AWI. AWI
BV is engaged in rendering services in the field of trade and finance service. |

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GENERAL (continued)

c.	Subsidiaries (continued)
	PT Balebat Dedikasi Prima (Balebat)
	Balebat is a company engaged in the printing business, domiciled in Bogor, Indonesia. On
July 1, 2006 Infomedia purchased 14% of Balebats shares from other shareholders, thereby
increasing Infomedias ownership interest from 51% to 65%.
	PT Finnet Indonesia (Finnet)
	Finnet is a company established in January 2006 that engaged in banking data and
communication. Metra has 60% direct ownership interest in Finnet.
	PT Pro Infokom Indonesia (PII)
	On January 29, 2003, the Company together with PT Indonesia Comnets Plus, a subsidiary of
Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara (PLN) and PT Prima Infokom
Indonesia established PT Pro Infokom Indonesia (PII). The establishment was notarized by
deed of A. Partomuan Pohan, S.H., LLM., notary in Jakarta, under Article of Association
No. 24, dated January 29, 2003.
	PII was established to develop a national information network system as the back-bone for
the development of the Indonesian e-Government. PII was intended to maximize the
utilization of both the Companys and PLNs existing infrastructures.
	On January 20, 2005, the Company sold its entire 51% equity interest in PII to PT Prima
Infokom Indonesia for Rp471 million. The revenues and expenses of PII as well as the
related loss on the sale of the subsidiary were not significant to the consolidated
statement of income.
d.	Authorization of the financial statements
	The consolidated financial statements were authorized for issue by the Board of Directors
on May 24, 2007 .

2.
The consolidated financial statements of the Company and subsidiaries have been prepared in
accordance with accounting principles generally accepted in Indonesia.

| a. |
| --- |
| The consolidated financial statements, except for the statements of cash flows, are
prepared on the accrual basis of accounting. The measurement basis used is historical cost,
except for certain accounts recorded on the basis described in the related accounting
policies. |
| The consolidated statements of cash flows are prepared using the direct method and present
the changes in cash and cash equivalents from operating, investing and financing
activities. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

a.	Basis for preparation of financial statements (continued)
	Figures in the consolidated statements are rounded and presented in millions of Indonesian
Rupiah (Rp), unless otherwise stated.
b.	Principles of consolidation
	The consolidated financial statements include the financial statements of the Company and
its subsidiaries in which the Company directly or indirectly has ownership of more than
50%, or the Company has the ability to control the entity, even though the ownership is
less than or equal to 50%. Subsidiaries are consolidated from the date on which every
effective control is obtained and are no longer consolidated from the date of disposal.
	All significant inter-company balances and transactions have been eliminated in
consolidation.
c.	Transactions with related parties
	The Company and subsidiaries have transactions with related parties. The definition of
related parties used is in accordance with Indonesian Statement of Financial Accounting
Standards (PSAK) No.7, Related Party Disclosures.
d.	Acquisitions of subsidiaries
	The acquisition of a subsidiary from a third party is accounted for by using the purchase
method of accounting. Intangible assets acquired in a purchase business combination are
amortized over their respective contactual lives. The excess of the acquisition cost over
the Companys interest in the fair value of identifiable assets acquired and liabilities
assumed is recorded as goodwill and amortized using the straight-line method over a period
of not more than five years.
	The Company continually assesses whether events or changes in circumtances have ocurred
that would require revision of the remaining useful life of intangible assets and goodwill,
or whether there is any indication of impairment. If any indication of impairment exists,
the recoverable amount of intangible assets and goodwill is estimated based on the expected future cash
flows which are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to
the asset.
	In July 2004, the Indonesian Financial Accounting Standard Board issued PSAK No.38 (Revised
2004), Accounting for Restructuring Transactions between Entities under Common Control,
(PSAK 38R). Under PSAK 38R, the acquisition transaction with entities under common
control is accounted for using book value, in a manner similar to that in pooling of
interests accounting (carryover basis). The difference between the consideration paid or
received and the related historical carrying amount, after considering income tax effects,
is recognized directly in equity and reported as Difference in value of restructuring
transactions between entities under common control in the stockholders equity section.
	The balance of Difference in value of restruturing transactions between entities under
common control is reclassified to retained earnings when the common control relationship
has ceased (see Note 4).

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

e.	Foreign currency translation
	The functional currency of the Company and its subsidiaries is the Indonesian Rupiah and
the books of accounts of the Company and its subsidiaries are maintained in Indonesian
Rupiah. Transactions in foreign currencies are translated into Indonesian Rupiah at the
rates of exchange prevailing at transaction date. At the balance sheet date, monetary
assets and monetary liability balances denominated in foreign currencies are translated
into Indonesian Rupiah based on the buy and sell rates quoted by Reuters prevailing at the
balance date. The Reuters buy and sell rates, applied respectively to translate monetary
assets and monetary liability balances, were Rp9,825 and Rp9,835 to US$1, Rp11,638 and
Rp11,652 to Euro1 and Rp83.78 and Rp83.89 to Japanese Yen1 as of December 31, 2005 and
Rp8,995 and Rp9,005 to US$1, Rp11,839 and Rp11,853 to Euro1 and Rp75.58 and Rp75.68 to
Japanese Yen1 as of December 31, 2006. Telkomsel used Bank Indonesia middle rate, which
were Rp9,830 to US$ 1 and Rp11,660 to Euro1 as of December 31, 2005 and Rp9,020 to US$ 1
and Rp11,858 to as Euro1 of December 31, 2006. Management concludes that the difference of
those exchange rates is not material to the consolidated financial statements.
	The resulting foreign exchange gains or losses, realized and unrealized, are credited or
charged to income of the current year, except for foreign exchange differences incurred on
borrowings during the construction of qualifying assets which are capitalized to the extent
that the borrowings can be attributed to the construction of those qualifying assets (Note
2k).
f.	Cash and cash equivalents
	Cash and cash equivalents consist of cash on hand and in banks and all unrestricted time
deposits with maturities of not more than three months from the date of placement.
g.	Investments

i.	Time deposits
	Time deposits with maturities of more than three months are presented as temporary
investments.
ii.	Investments in securities
	Investments in available-for-sale securities are stated at fair value. Unrealized
holding gains or losses from available-for-sale securities are excluded from income of
the current year and are reported as a separate component in the stockholders equity
section until realized. Realized gains or losses from the sale of available-for-sale
securities are recognized in the income of the current year, and are determined on a
specific-identification basis. A decline in the fair value of any available-for-sale
securities below cost that is deemed to be other-than-temporary is charged to income of
the current year.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

iii.	Investments in associated companies
	Investments in shares of stock in which the Company has 20% to 50% of the voting rights,
and through which the Company exerts significant influence, but not control, over the
financial and operating policies are accounted for using the equity method. Under this
method, the Company recognizes the Companys proportionate share in the income or loss
of the associated company from the date that significant influence commences until the
date that significant influence ceases. When the Companys share of loss exceeds the
carrying amount of the associated company, the carrying amount is reduced to nil and
recognition of further losses is discontinued except to the extent that the Company has
guaranteed obligations of the associated company or committed to provide further
financial support to the associated company.
	On a continuous basis, but no less frequently than at the end of each year, the Company
evaluates the carrying amount of its ownership interests in investee companies for
possible impairment. Factors considered in assessing whether an indication of
other-than-temporary impairment exists include the achievement of business plan
objectives and milestones including cash flow projections and the results of planned
financing activities, the financial condition and prospects of each investee company,
the fair value of the ownership interest relative to the carrying amount of the
investment, the period of time the fair value of the ownership interest has been below
the carrying amount of the investment and other relevant factors. Impairment to be
recognized is measured based on the amount by which the carrying amount of the
investment exceeds the fair value of the investment. Fair value is determined based on
quoted market prices (if any), projected discounted cash flows or other valuation
techniques as appropriate.
	Changes in the value of investments due to changes in the equity of associated companies
arising from capital transactions of such associated companies with other parties are
recognized directly in equity and are reported as Difference due to change of equity in
associated companies in the stockholders equity section. Differences previously
credited directly to equity as a result of equity transactions in associated companies
are released to the statement of income upon the sale of an interest in the associate in
proportion with percentage of the interest sold.
	The functional currency of PT Pasifik Satelit Nusantara and PT Citra Sari Makmur is the
U.S. Dollar. For the purpose of reporting these investments using the equity method, the
assets and liabilities of these companies as of the balance sheet date are translated
into Indonesian Rupiah using the rates of exchange prevailing at that date, while
revenues and expenses are translated into Indonesian Rupiah at the average rates of
exchange for the year. The resulting translation adjustments are reported as part of
Translation adjustment in the equity section.
iv.	Other investments
	Investments in shares of stock with ownership interests of less than 20% that do not
have readily determinable fair values and are intended for long-term investments are
carried at cost and are adjusted only for other-than-temporary decline in the value of
individual investments. Any such write-down is charged directly to income of the current
year.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

h.	Trade and other receivables
	Trade and other receivables are recorded net of an allowance for doubtful accounts, based
upon a review of the collectibility of the outstanding amounts. Accounts are written off
against the allowance during the period in which they are determined to be not collectible.
	Trade and other receivables are recorded at the invoiced amount. The allowance for doubtful
accounts is the Companys best estimate of the amount of probable credit losses in the
Companys existing accounts receivable. The amount of the allowance is recognized in the
consolidated statement of income within operating expenses general and administrative. The
Company determines the allowance based on historical write-off experience. The Company
reviews its allowance for doubtful accounts monthly. Past due balances over 90 days for
retail customers are fully provided, and past due balance for non-retail customers over a
specified amount are reviewed individually for collectibility. Account balances are charged
off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. The Company does not have any off-balance sheet
credit exposure related to its customers.
i.	Inventories
	Inventories consist of components and modules which are expensed and transferred to
property, plant and equipment upon use, respectively. Inventories also include Subscriber
Identification Module (SIM) cards, Removable User Identity Module (RUIM) cards and pulse
reload voucher blanks, which are expensed upon sale. Inventories are stated at the lower of
costs or net realizable value.
	Cost is determined using the weighted average cost method for components, SIM cards, RUIM
cards and prepaid voucher blanks, and the specific-identification method for modules.
	Allowance for obsolescence is primarily based on the estimated forecast of future usage of
these items.
j.	Prepaid expenses
	Prepaid expenses are amortized over their beneficial periods using the straight-line method.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k.
Property, plant and equipment directly acquired are stated at cost, less accumulated
depreciation and impairment losses.
Property, plant and equipment, except land, are depreciated using the straight-line method,
based on the estimated useful lives of the assets as follows:

Buildings	20
Switching equipment	5-15
Telegraph, telex and data communication equipment	5-15
Transmission installation and equipment	5-20
Satellite, earth station and equipment	3-15
Cable network	5-15
Power supply	3-10
Data processing equipment	3-10
Other telecommunications peripherals	5
Office equipment	2-5
Vehicles	5-8
Other equipment	5

Land is stated at cost and is not depreciated.

When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount, which is determined based upon the greater of its net selling price or value in use.

The cost of maintenance and repairs is expensed as incurred. Expenditures, which extend the useful life of the asset or result in increased future economic benefits such as increase in capacity or improvement in the quality of output or standard of performance, are capitalized and depreciated in conjunction with the depreciation of the related property, plant and equipment over their remaining useful lives or their newly estimated useful lives.

When assets are retired or otherwise disposed of, their carrying values and the related accumulated depreciation are eliminated from the consolidated financial statements, and the resulting gains or losses on the disposal or sale of property, plant and equipment are recognized in the statements of income.

Computer software used for data processing is included in the value of the associated hardware.

Property under construction is stated at cost until construction is complete, at which time it is reclassified to the specific property, plant and equipment account to which it relates. During the construction period, borrowing costs, which include interest expense and foreign exchange differences incurred to finance the construction of the asset, are capitalized in proportion to the average amount of accumulated expenditures during the period. Capitalisation of borrowing cost ceases when the assets are ready for its intended use.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k.	Property, plant and equipment direct acquisitions (continued)
	Equipment temporarily unused are reclassified into equipment not used in operation and
depreciated over their estimated useful life using straight line method.
l.	Property, plant and equipment under capital leases
	Property, plant and equipment acquired under capital leases are stated at the present value
of minimum lease payments along with the residual values (option price) paid by the lessee
at the end of lease period. At inception of the lease, a corresponding liability, which
equals to the present value of minimum lease payments, is also recorded and subsequently
reduced by the principal component of each minimum lease payment. The interest component of
each minimum lease payment is recognized in the statements of income.
	Leased assets are capitalized only if all of the following criteria are met: (a) the lessee
has an option to purchase the leased asset at the end of the lease period at a price agreed
upon at the inception of the lease agreement, and (b) the sum of periodic lease payments,
plus the residual value, will cover the acquisition price of the leased asset and related
interest, and (c) there is a minimum lease period of at least 2 years.
	Leased assets are depreciated using the same method and over the same estimated useful lives
used for directly acquired property, plant and equipment.
m.	Revenue-sharing arrangements
	Revenues from revenue-sharing arrangements are recognized based on Companys share as agreed
upon in the contracts.
	The Company records assets under revenue-sharing agreements as Property, plant and
equipment under revenue-sharing arrangements (with a corresponding initial credit to
Unearned income on revenue-sharing arrangements presented in the liabilities section of
the balance sheet) based on the costs incurred by the investors as agreed upon in the
contracts entered into between the Company and the investors. Property, plant and equipment
are depreciated over their estimated useful lives using the straight-line method (Note 2k).
	Unearned income related to the acquisition of the property, plant and equipment under
revenue-sharing arrangements is amortized over the revenue-sharing period using the
straight-line method.
	At the end of the revenue-sharing period, the respective property, plant and equipment under
revenue-sharing arrangements are reclassified to the Property, plant and equipment
account.
n.	Joint operation schemes
	Revenues from joint operation schemes include amortization of the investors initial
payments, Minimum Telkom Revenues (MTR) and the Companys share of Distributable KSO
Revenues (DKSOR).

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n.	Joint operation schemes (continued)
	Unearned initial investor payments received as compensation from the KSO Investors were
presented net of all direct costs incurred in connection with the KSO agreement and
amortized using the straight-line method over the KSO period of 15 years starting from
January 1, 1996.
	MTR were recognized on a monthly basis, based upon the contracted MTR amount for the current
year, in accordance with the KSO agreement.
	The Companys share of DKSOR was recognized on the basis of the Companys percentage share
of the KSO revenues, net of MTR and operational expenses of the KSO Units, as provided in
the KSO agreements.
	Under PSAK No. 39, Accounting for Joint Operation Schemes, which supersedes paragraph 14
of PSAK No. 35, Accounting for Telecommunication Services Revenue, the assets built by the
KSO Investors under the joint operation schemes were recorded in the books of the KSO
Investors which operate the assets and would be transferred to the Company at the end of the
KSO period or upon termination of the KSO agreement.
	As of December 31, 2006 the Company has obtained full control over all of the KSO
operations by acquisition of its KSO investors or the businesses.
o.	Deferred charges for landrights
	Costs incurred to process and extend the landrights are deferred and amortized using the
straight-line method over the term of the landrights.
p.	Treasury stock
	The reacquired Companys stocks is accounted for using the reacquisition cost and presented
as Treasury Stock to be deducted against the equity. The cost of reacquired Companys
stocks sold is accounted for using the weighted average method. The difference resulting
from the cost and the proceeds from the sale of treasury stock is credited to Paid-in
Capital.
q.	Revenue and expense recognition

| i. |
| --- |
| Revenues from fixed line installations are recognized at the time the installations are placed in
service and ready for use. Revenues from usage charges are recognized as customers incur the
charges. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Revenue and expense recognition (continued)

ii.
Revenues from post-paid services, which consist of connection fee as well as usage and
monthly charges, are recognized as follows:

| | Connection fees for service connection are recognized as revenues at the time
the connection occurs. |
| --- | --- |
| | Airtime and charges for value added services are recognized based on usage by
subscribers. |
| | Monthly subscription charges are recognized as revenues when incurred by
subscribers. |

Revenues from prepaid card customers, which consist of the sale of starter packs (also known as SIM cards in the case of cellular or RUIM in the case of fixed wireless telephone and start-up load vouchers) and pulse reload vouchers, are recognized as follows:

| | Sale of SIM and RUIM card is recognized as revenue upon delivery of the starter
packs to distributors, dealers or directly to customers. |
| --- | --- |
| | Sale of pulse reload vouchers (either bundled in starter packs or sold as
separate items) is recognized initially as unearned income and recognized
proportionately as usage revenue based on duration of successful calls made and the
value added services used by the subscribers or the expiration of the unused stored
value of the voucher. |

iii.	Interconnection revenues
	Revenues from network interconnection with other domestic and international
telecommunications carriers are recognized as incurred based on agreement and are
presented net of interconnection expenses.
iv.	Data and internet revenues
	Revenues from installations (set-up) of internet, data communication and e-Business are
recognized upon the completion of installations. Revenues from data communication and
internet are recognized based on usage.
v.	Revenues from network
	Revenues from network consist of revenues from leased lines and satellite transponder
leases. Revenues are recognized based on subscription fee as specified in the
agreements.

Expenses are recognized on an accrual basis and unutilized promotional credits and allowances are netted against unearned income.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

r. Employee benefits

i.	Pension and post-retirement health care benefit plans
	The net obligations in respect of the defined pension benefit and post-retirement health
care benefit plans are calculated at the present value of estimated future benefits that
the employees have earned in return for their service in the current and prior periods,
deducted by any plan assets, unrecognized actuarial gains or losses, and unrecognized
past service cost. The calculation is performed by an independent actuary using the
projected unit credit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using interest rates of
government bonds that have terms to maturity approximating the terms of the related
liability.
	Actuarial gains or losses arising from experience adjustments and changes in actuarial
assumptions, when exceeding the greater of 10% of present value of the defined benefit
obligation and 10% of fair value of plan assets, are charged or credited to the income
statement over the average remaining service lives of the relevant employees. Prior
service cost is recognized immediately if vested or amortized over the vesting period.
	For defined contribution plans, the regular contributions constitute net periodic costs
for the year in which they are due and as such are included in staff costs.
ii.	Long service awards (LSA)
	Employees are entitled to receive certain cash awards based on length of service
requirement. The benefits are either paid at the time the employee reaches certain
anniversary dates during employment or proportionately upon retirement or at the time of
termination.
	Actuarial gains or losses arising from experience adjustment and changes in actuarial
assumptions are charged immediately to current income statement.
	The obligation with respect to LSA is calculated by an independent actuary using the
projected unit credit method.
iii.	Early retirement benefits
	Early retirement benefits are accrued at the time a commitment to provide early
retirement benefits is made as a result of an offer made in order to encourage voluntary
redundancy. A commitment to a termination arises when, and only when a detailed formal
plan for the early retirement cannot be withdrawn.

Gains or losses on curtailment are recognized when there is a commitment to make a material reduction in the number of employees covered by a plan or when there is an amendment of a defined benefit plan terms such that a material element of future services by current employees will no longer qualify for benefits, or will qualify only for reduced benefits.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

r.	Employee benefits (continued)
	Gains or losses on settlement are recognized when there is a transaction that eliminates all
further legal or constructive obligation for part or all of the benefits provided under a
defined benefit plan.
s.	Income tax
	The Company and its subsidiaries recognized deferred tax assets and liabilities for
temporary differences between the financial and tax bases of assets and liabilities at each
reporting date. The Company and its subsidiaries recognized deferred tax assets resulting
from the recognition of future tax benefits, such as the benefit of tax loss carryforwards,
to the extent their future realization is probable. Deferred tax assets and liabilities are
measured using enacted tax rates at each reporting date which are expected to apply to
taxable income in the years in which those temporary differences are expected to be
recovered or settled.
	Income tax is charged or credited to the statement of income, except to the extent that it
relates to items recognized directly in equity, such as difference in value of restructuring
transactions between entities under common control (Note 2d) and effect of foreign currency
translation adjustment for certain investments in associated companies (Note 2g.iii), in
which case income tax is also charged or credited directly to equity.
	Amendments to taxation obligations are recorded when an assessment is received or if
appealed against, when the results of the appeal are determined.
t.	Basic earnings per share and earnings per American Depositary Share (ADS)
	Basic earnings per share are computed by dividing net income by the weighted average number
of shares outstanding during the year. Net income per ADS is computed by multiplying basic
earnings per share by 40, the number of shares represented by each ADS.
u.	Segment information
	The Company and its subsidiaries segment information is presented based upon identified
business segments. A business segment is a distinguishable unit that provides different
products and services and is managed separately. Business segment information is consistent
with operating information routinely reported to the Companys chief operating decision
maker.
v.	Derivative instruments
	Derivative transactions are accounted for in accordance with PSAK 55, Accounting for
Derivative Instruments and Hedging Activities which requires that all derivative
instruments be recognized in the financial statements at fair value. To qualify for hedge
accounting, PSAK 55 requires certain
criteria to be met, including documentation required to have been in place at the inception
of the hedge.
	Changes in fair value of derivative instruments that do not qualify for hedge accounting are
recognized in the statement of income. If a derivative instrument is designated and
qualifies for hedge accounting, changes in fair value of derivative instruments are recorded
as adjustments to the assets or liabilities being hedged in the income for the current year
or in the stockholders equity, depending on the type of hedge transaction represented and
the effectiveness of the hedge.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

w.	Dividends
	Dividend distribution to the Companys shareholders is recognized as liability in the
Companys consolidated financial statements in the period in which the dividends are
approved by the Companys shareholders.
x.	Intangible Assets
	Intangible assets comprised of intangible assets from subsidiaries and business acquisition
(see note 2d) and license. Intangible asset shall be recognized if it is probable that the
expected future economic benefits that are attributable to the asset will flow to the
Company and the cost of the asset can be reliably measured. Intangible asset is stated at
cost less accumulated amortizaton and impairment, if any. Intangible asset is amortized over
its useful life. The Company shall estimate the recoverable value of its intangible assets.
When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is
written down to its estimated recoverable amount.
	In 2006, Telkomsel was granted the right to operate the 3G license. Telkomsel is required to
pay an up-front fee and annual rights of usage (BHP) fee for the next ten years. The
up-front fee is recorded as intangible asset and amortized using the straight line method
over the term of the right to operate the 3G license (10 years). Amortization commences from
the date when the assets attributable to the provision of the related services are available
for use.
	Based on management interpretation of the license conditions and the written confirmation
from the Directorate General of Post and Telecommunication, it is believed that the license
could be returned at any time without any financial obligation to pay the remaining
outstanding BHP fees. Based on this fact, Telkomsel concluded that it has purchased the
right to make annual operating payments to operate the 3G license. Accordingly, Telkomsel
recognizes the BHP fees as expense when incurred.
	Management of Telkomsel assess its plan to continue to use the license on an annual basis.
y.	Use of estimates
	The preparation of the consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period.
Significant items subject to such estimates and assumptions include the carrying amount of
property, plant and equipment and intangible assets, valuation allowance for receivables and
obligations related to employee benefits. Actual results could differ from those estimates.

| 3. |
| --- |
| The consolidated financial statements are stated in Indonesian Rupiah. The translations of
Indonesian Rupiah amounts into United States Dollars are included solely for the convenience
of the readers and have been made using the average of the market buy and sell rates of
Rp9,000 to US$1 published by Reuters on December 31, 2006. The convenience translations should
not be construed as representations that the Indonesian Rupiah amounts have been, could have
been, or could in the future be, converted into United States Dollars at this or any other
rate of exchange. |

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4.	CHANGES IN ACCOUNTING POLICY
	In July 2004, the Indonesian Financial Accounting Standards Board issued PSAK No. 38 (Revised
2004), Accounting for Restructuring Transactions between Entities under Common Control,
(PSAK 38R). PSAK 38R changed the Companys accounting policy for the previously recorded
restructuring transactions between entities under common control when certain conditions were
met. The provisions of PSAK 38R were effective for the Company beginning January 1, 2005, the
initial application date.
	Pursuant to a ruling issued by the Indonesian Capital Market and Financial Institution
Supervisory Agency (BAPEPAM) regarding the initial application of PSAK 38R by public
entities, the Company was required to reclassify the previously recorded difference in value
of restructuring transactions between entities under common control as a direct adjustment to
retained earnings as of the initial application date when the common control relationship
between the transacting parties no longer exists as of January 1, 2005.
	As discussed in Note 30, the difference in value of restructuring transactions between
entities under common control as of January 1, 2005 amounting to Rp7,288,271 million arose
from transactions between the Company and Indosat, which at the time of the transactions was
also controlled by the Government and therefore was an entity under common control with the
Company. This common control relationship ceased to exist in December 2002 when the Government
sold its 41.94% ownership interest in Indosat to STT Communications Ltd. (STTC) and waived
its special voting rights with respect to the Series A Dwiwarna share. In accordance with the
BAPEPAM ruling, the Company has reclassified the difference in value of restructuring
transactions between entities under common control resulting from the cross-ownership
transactions and acquisition of Pramindo as a charge to retained earnings as of January 1,
2005. This reclassification has no net effect on the consolidated stockholders equity.
5.	ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII

| a. |
| --- |
| The Company acquired control of Dayamitra (previously the Companys KSO VI partner) on May
17, 2001 by acquiring 90.32% of the shares and has consequently consolidated Dayamitra
from that date. |

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ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

a.
The allocation of the acquisition cost was as follows:

Purchase consideration net	1,351,299
Fair value of net assets acquired:
- Cash and cash equivalents	93,652
- Distributable KSO revenue receivable	62,398
- Other current assets	9,450
- Property, plant and equipment	1,401,479
- Intangible assets	1,276,575
- Other non-current assets	19,510
- Current liabilities	(236,265	)
- Deferred tax liabilities	(581,816	)
- Non-current liabilities	(693,684	)
Fair value of net assets	1,351,299

The Company also entered into the following agreements:

| 1. |
| --- |
| The Company entered into an Option Agreement with TM Communications (HK) Ltd (TMC),
providing the Company with an option to acquire the remaining 9.68% equity interest in
Dayamitra, referred to as the Option Share. Under the agreement, TMC, the selling
stockholder, granted the Company an exclusive option to purchase full and legal title
to the Option Share (the Call Option), and the Company granted the selling
stockholder an exclusive option to sell to the Company full legal title to those shares
(the Put Option). |
| In consideration for the grant of the options, the Company paid to the selling
stockholder the option purchase price of US$6.3 million plus US$1 million as payment
for Dayamitras adjusted working capital, or a total of US$7.3 million. The amount was
paid in eight quarterly installments of US$0.9 million beginning on August 17, 2001 and
ending on May 17, 2003. Payments were made through an escrow account established under
the Escrow Agreement discussed below. |
| The Company was entitled to exercise the option any time after Dayamitra satisfied all
of its obligations under the JBIC (formerly J-Exim) loan beginning on May 17, 2003 and
until five business days prior to March 26, 2006. The strike price payable by the Company to the
selling stockholder for the Option Shares upon exercise of the option would be US$16.2
million less certain amounts that are stipulated in the Option Agreement. |
| Dayamitra repaid the JBIC loan and the JBIC loan agreement was terminated on March 25,
2003. |

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ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

a. Dayamitra (continued)

1.	Option Agreement (continued)
	On December 14, 2004, the Company exercised the option by entering into a Sale and
Purchase Agreement to acquire TMCs 9.68% outstanding shares in Dayamitra with the
strike price of US$16.2 million with the payment be due on March 26, 2006. Payment of
the strike price would be made through an escrow account established under the Escrow
Agreement discussed below. The Company was required to deposit US$12.6 million
(representing the strike price of US$16.2 million less funds available in the escrow
account on November 30, 2004 of US$2.4 million and withholding tax of US$1.2 million) in
sixteen monthly installments of US$0.8 million beginning on December 26, 2004 through
March 26, 2006.
	The purchase price for 9.68% outstanding shares of Dayamitra was US$22.1 million or
equivalent to Rp203,028 million which represented the present value of the option strike
price (US$16.2 million) using a discount rate of 7.5% at the acquisition date plus the
option purchase price (US$6.3 million) and the payment for Dayamitras adjusted working
capital (US$1 million). This additional acquisition resulted in intangible assets
represents the rights to operate the business in KSO VI of Rp231,477 million. The amount
is being amortized over the then remaining term of the KSO agreement of 6 years (Note
15). There was no goodwill arising from this additional acquisition. Had this
acquisition taken place on January 1, 2004, the consolidated net income for the year
ended December 31, 2004 would not have been significantly different from the reported
amounts.
	As of December 31, 2005, the remaining option strike price to be paid to TMC, before
unamortized discount, amounted to US$15 million (equivalent Rp147,791 million) (Note
25). On March 27, 2006, the option strike price had been fully repaid.
2.	Escrow Agreement
	An Escrow Agreement dated May 17, 2001, was entered into by and among the Company,
Dayamitra, PT Intidaya Sistelindomitra (Intidaya), Cable and Wireless plc (C&W
plc), PT Mitracipta Sarananusa (Mitracipta), TMC, Tomen Corporation (Tomen),
Citibank N.A. Singapore (the Singapore Escrow Agent) and Citibank N.A. Jakarta (the
Jakarta Escrow Agent), to establish an Escrow Account to facilitate the payment. In
2006, the Company repaid the entire obligation and the remaining funds available in the
escrow account was transferred to the Companys account (Note 16).

| b. |
| --- |
| On April 19, 2002, the Company and the stockholders of Pramindo (previously the Companys
KSO I partner), namely France Cables et Radio SA, PT Astratel Nusantara, Indosat, Marubeni
Corporation, International Finance Corporation (IFC) and NMP Singapore Pte. Ltd. (NMP
Singapore) (collectively the Selling Stockholders) entered into a Conditional Sale and
Purchase Agreement pursuant to which the Company acquired all of Pramindos shares. The
Selling Stockholders shares were transferred to an escrow account (hereafter referred as
escrow shares). |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

| b. |
| --- |
| The aggregate purchase price amounted to US$390.3 million (equivalent to Rp3,464,040
million) plus Rp250,000 million, represented by an initial payment of approximately US$9.3
million (equivalent to Rp82,218 million), consultants fees of US$5.9 million (equivalent
to Rp52,818 million), working capital reimbursement of Rp250,000 million, and the issue by
the Company of Promissory Notes (series I and series II) with an aggregate face value of
US$375.1 million, of which the present value at the discount rate of 8.76% at the
effective date of the acquisition was estimated to be US$332.8 million (equivalent to
Rp2,953,617 million). The series I Promissory Notes were non-interest bearing and the
series II Promissory Notes carried a market interest rate. The Promissory Notes would be
repaid in 10 unequal quarterly installments beginning September 15, 2002 and were
irrevocable, unconditional and transferable. |
| The total purchase consideration was allocated first to the net monetary assets and then
the fixed assets acquired. An intangible asset of Rp2,752,267 million was identified
representing the right to operate the business in the KSO I Area. The amount is being
amortized over the then remaining term of the KSO agreement of 8.4 years (Note 15). There
was no goodwill arising from this acquisition. |
| In addition, the portion that related to Indosats 13% equity interest in Pramindo has
been accounted for as a restructuring of entities under common control. On the acquisition
date, the difference between the purchase consideration and the historical amount of the
net assets acquired amounting to Rp296,038 million was included as Difference in value of
restructuring transactions between entities under common control in the stockholders
equity section (see Note 30) and was calculated as follows: |

Purchase consideration net of discount on promissory notes	3,338,653
Historical amount of net assets	1,061,437
Difference in value for 100% ownership	2,277,216
Difference adjusted to stockholders equity for
Indosats 13% ownership in Pramindo	296,038

The Company acquired control of Pramindo on August 15, 2002 and has consequently consolidated Pramindo from August 1, 2002 being the nearest convenient balance date.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

b.
The allocation of the acquisition cost was as follows:

Purchase consideration net of discount on promissory notes	3,338,653
Fair value of net assets acquired:
- Cash and cash equivalents	141,475
- Distributable KSO revenue receivable	187,468
- Other current assets	13,839
- Property, plant and equipment	1,807,338
- Intangible assets	2,752,267
- Other non-current assets	160,139
- Current liabilities	(284,120	)
- Deferred tax liabilities	(1,115,645	)
- Non-current liabilities	(620,146	)
Fair value of net assets	3,042,615
Difference adjusted to equity for 13% Indosats ownership in Pramindo	296,038
Total purchase consideration	3,338,653

| | On January 28, 2004, the Company obtained a loan to finance the payment of the outstanding
promissory notes issued for the acquisition of Pramindo. On March 15, 2004, the Company
repaid the remaining balance of these promissory notes and legal title to all of
Pramindos shares has been completely transferred to the Company. |
| --- | --- |
| c. | AWI |
| | Effective on July 31, 2003 (the closing date), the Company acquired 100% of the
outstanding common stock of AWI (previously the Companys KSO III partner), for
approximately Rp1,141,752 million plus the assumption of AWIs debts of Rp2,577,926
million. The purchase consideration included non-interest bearing promissory notes with a
face value of US$109.1 million (equivalent to Rp927,272 million), the present value of
which at the discount rate of 5.16% at the closing date was estimated to be US$92.7
million (equivalent to Rp788,322 million). The promissory notes would be paid in 10 equal
semi-annual installments beginning July 31, 2004. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

| c. |
| --- |
| The acquisition of AWI has been accounted for using the purchase method of accounting.
There was no goodwill arising from this acquisition. The following table summarizes the
final purchase price allocation of the acquired assets and assumed liabilities based on
estimates of their respective fair values at the closing date: |

Distributable KSO revenue receivable	540,267
Property, plant and equipment	1,556,269
Intangible assets	1,982,564
Other assets	34,372
Deferred tax liabilities	(393,794	)
Fair value of net assets acquired	3,719,678
Borrowings assumed	(2,577,926	)
Total purchase consideration	1,141,752

| Intangible assets identified from this acquisition represent the right to operate the
business in the KSO III area and the amount is being amortized over the then remaining
term of the KSO agreement of 7.4 years (Note 15). |
| --- |
| The Companys consolidated results of operations had included the operating results of AWI
since July 31, 2003, the date of acquisition. |
| The outstanding promissory notes issued for the acquisition of AWI are presented as
Deferred consideration for business combinations in the consolidated balance sheets
(Note 25). As of December 31, 2005 and 2006, the outstanding promissory notes, before
unamortized discount, amounted to US$76.4 million (equivalent to Rp751,036 million) and
US$54.5 million (equivalent to Rp491,182 million), respectively. |
| The allocation of the acquisition cost described above was based on an independent
appraisal report of fair values. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

| d. |
| --- |
| On January 20, 2004, the Company and PT Mitra Global Telekomunikasi Indonesia (MGTI),
the investor in KSO IV, entered into an agreement to amend and restate their joint
operation agreement (KSO agreement). The principal provisions in the original KSO
agreement that have been amended are as follows: |

| | The rights to operate fixed-line telecommunications services had been transferred
to the Company, where KSO IV is operated under the management, supervision, control
and responsibility of the Company. |
| --- | --- |
| | Responsibilities for funding construction of new telecommunication facilities and
payments of operating expenses incurred in KSO IV had been assigned to the Company. |
| | Risk of loss from damages or destruction of assets operated by KSO IV is
transferred to the Company. |
| | At the end of the KSO period (December 31, 2010), all rights, title and interest
of MGTI in the existing property, plant and equipment (including new additional
installations) and inventories will be transferred to the Company at no cost. |
| | The Companys rights to receive Minimum Telkom Revenues (MTR) and share in
Distributable KSO Revenues (DKSOR) under the original KSO agreement were amended so
that MGTI receives fixed monthly payments (Fixed Investor Revenues) beginning in
February 2004 through December 2010 totaling US$517.1 million and the Company is
entitled to the balance of KSO revenues net of operating expenses and payments to
MGTI for Fixed Investor Revenues. In addition, payments for Fixed Investor Revenues
must be made to MGTI before any payments can be made to the Company. |
| | In the event funds in KSO IV are insufficient to pay Fixed Investor Revenues to
MGTI, the Company is required to pay the shortfall to MGTI. |

As a result of the amendment of the KSO agreement, the Company obtained the legal right to control the financial and operating decisions of KSO IV. Accordingly, the Company has accounted for this transaction as a business combination using the purchase method of accounting.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

| d. |
| --- |
| The purchase price for this transaction was approximately US$390.7 million (equivalent to
Rp3,285,362 million) which represented the present value of fixed monthly payments
(totaling US$517.1 million) to be paid to MGTI beginning in February 2004 through December
2010 using a discount rate of 8.3% plus the direct cost of the business combination. The
allocation of the acquisition cost was as follows: |

Property, plant and equipment	2,377,134
Intangible assets	908,228
Total purchase consoderation	3,285,362

| | The allocation of the acquisition cost described above was based on an independent
appraisal of fair values. Intangible assets identified from this acquisition represent
right to operate the business in the KSO area and the amount is being amortized over the
remaining term of the KSO agreement of 6.9 years (Note 15). There was no goodwill arising
from this acquisition. |
| --- | --- |
| | The Companys consolidated results of operations has included the operating results of KSO
IV since February 1, 2004 being the nearest convenient balance date. |
| | As of December 31, 2005 and 2006, the remaining monthly payments to be made to MGTI,
before unamortized discount, amounted to US$393.3 million (Rp3,868,433 million) and
US$319.2 million (Rp2,874,128 million) and is presented as Deferred consideration for
business combinations (Note 25). |
| e. | Amendment and Restatement of the Joint Operation Scheme in Regional Division VII
(KSO VII) |
| | On October 19, 2006, the Company and PT Bukaka Singtel International (BSI), the investor
in KSO VII, entered into an agreement to amend and restate their joint operation agreement
(KSO agreement). The principal provisions in the original KSO agreement that have been
amended and restated are as follow: |

The rights to operate fixed-line telecommunications services had been transferred to the Company, where KSO VII is operated under the management, supervision, control and responsibility of the Company.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITION OF KSO INVESTORS, KSO IV AND KSO VII (continued)

e. Amendment and Restatement of the Joint Operation Scheme in Regional Division VII (KSO VII) (continued)

| | The responsibilities for funding construction of new telecommunication facilities
and payments of operating expenses incurred in KSO VII had been assigned to the
Company. |
| --- | --- |
| | The risk of loss from damages or destruction of assets operated by KSO VII will be
transferred to the Company. |
| | At the end of the KSO period (December 31, 2010), all rights, title and interest
of BSI in existing property, plant and equipment (including new additional
installations) and inventories will be transferred to the Company at no cost. |
| | The Companys rights to receive Minimum Telkom Revenues (MTR) and share in
Distributable KSO Revenues (DKSOR) under the original KSO agreement were amended so
that BSI receives fixed monthly payments (Fixed Investor Revenues) amounting to
Rp55.64 billion beginning in October 2006 through June 2007 and amounting to Rp44.25
billion in July 2007 through December 2010. The Company is entitled to the balance of
KSO revenues net of operating expenses and payments to BSI for Fixed Investor
Revenues. In addition, payments for Fixed Investor Revenues must be made to BSI
before any payments could be made to the Company. |
| | In the event funds in KSO VII are insufficient to pay Fixed Investor Revenues to
BSI, the Company is required to pay the shortfall to BSI. |

As a result of the amendment and restatement of the KSO agreement, the Company obtained the legal right to control financial and operating decisions of KSO VII. Accordingly, the Company has accounted for this transaction as a business combination using the purchase method of accounting. As a condition precedent to the coming into effect of the amended KSO agreement, the Company has entered into assignment agreement with BSI and its business partners whereby BSI assigned its revenue sharing agreements with its business partners to the Company. The Company has accounted for these transactions in accordance with the accounting treatment for revenue sharing arrangements.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITION OF KSO INVESTORS, KSO IV AND KSO VII (continued)

| e. |
| --- |
| The purchase price for this transaction was approximately Rp1,770,925 million which
represents the present value of fixed monthly payments (totaling Rp2,359,230 million) to
be paid to BSI beginning in October 2006 through December 2010 using a discount rate of
15% plus the direct cost of the business combination. The allocation of the acquisition
cost was as follows: |

Purchase consideration at present value	1,770,925
Fair value of net assets acquired:
- Cash and cash equivalents	143,648
- Receivables	266,337
- Other current assets	69,960
- Property, plant and equipment	1,288,888
- Deferred tax assets	6,993
- Property, plant and equipment under revenue
sharing arrangements	452,205
- Intangible assets	451,736
- Current liabilities	(456,637	)
- Unearned income on revenue sharing arrangements	(452,205	)
Fair value of net assets	1,770,925

| The fair value of the property, plant and equipment and property, plant and equipment
under revenue sharing arrangements described above was determined by an independent
appraisal whereas the fair value of other assets and liabilities was determined by
management. The intangible assets represent right to operate the business in the KSO VII
area and the amount is being amortized over the remaining term of the KSO agreement of 4.3
years (Note 15). There was no goodwill arising from this acquisition. |
| --- |
| The Companys consolidated results of operations has included the operating results of KSO
VII since October 1, 2006 being the nearest convenient balance date. |
| As of December 31, 2006, the remaining monthly payments to be made to BSI, before
unamortized discount, amounted to Rp2,226,431 million and is presented as Deferred
consideration for business combinations (Note 25). |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ACQUISITIONS OF KSO INVESTORS, KSO IV AND KSO VII (continued)

| f. |
| --- |
| The following unaudited pro forma financial information reflects the consolidated results
of operations of the Company as if the acquisition of KSO VII had taken place on January
1, 2005. The pro forma information includes adjustments for amortization of intangible
assets, depreciation expense on property, plant and equipment based on the allocated
purchase price, interest expense on incremental borrowings and income taxes. The pro forma
financial information is not necessarily indicative of the results of operations as it
would have been had the transactions been effected on the assumed dates or indicative of
future operations. |

2005	2006
Operating revenues	43,331,841	52,410,229
Operating income	17,568,948	21,896,658
Income before tax	16,461,991	22,205,996
Net income	8,147,616	11,245,085
Net income per share in full Rupiah amount	404.15	559.05
Net income per ADS in full Rupiah amount	16,165.91	22,362.13

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CASH AND CASH EQUIVALENTS

Cash on hand	6,070	8,281
Cash in banks
Related parties
Rupiah
Bank Negara Indonesia	54,590	207,365
Bank Mandiri	89,128	136,481
Bank Rakyat Indonesia	5,095	15,395
Bank Pos Nusantara	879	1,447
Total	149,692	360,688
Foreign currencies
Bank Mandiri	55,797	32,039
Bank Negara Indonesia	2,701	5,818
Bank Rakyat Indonesia	657	607
Total	59,155	38,464
Total related parties	208,847	399,152
Third parties
Rupiah
Deutsche Bank	15,954	18,274
Bank Central Asia	8,398	15,326
Bank Bukopin	15,800	8,058
ABN AMRO Bank	34,453	4,851
BPD Papua		2,717
Bank Niaga	498	2,104
Citibank NA	1,595	1,426
Bank Mega	1,321	941
Bank Permata		927
Lippo Bank	1,361	700
Bank Danamon	324	338
Bank Muamalat Indonesia	601	252
Bank Bumiputera Indonesia	242	158
Bank Buana Indonesia	1,189	123
Bank Internasional Indonesia	53	31
Total	81,789	56,226
Foreign currencies
ABN AMRO Bank	54,575	51,781
Citibank NA	5,737	8,568
Deutsche Bank	5,309	2,921
Standard Chartered Bank	99	91
Bank Central Asia	142	89
Bank Internasional Indonesia	30	48
The Bank of Tokyo Mitsubishi	46	33
Total	65,938	63,531
Total third parties	147,727	119,757
Total cash in banks	356,574	518,909

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CASH AND CASH EQUIVALENTS (continued)


Time deposits
Related parties
Rupiah
Bank Negara Indonesia	660,915	2,131,515
Bank Mandiri	1,510,009	1,361,098
Bank Rakyat Indonesia	246,415	635,000
Bank Tabungan Negara	132,455	294,890
Bank Syariah Mandiri	7,000
Total	2,556,794	4,422,503
Foreign currencies
Bank Mandiri	293,115	732,631
Bank Negara Indonesia	98	98
Total	293,213	732,729
Total related parties	2,850,007	5,155,232
Third parties
Rupiah
Bank Niaga	109,565	199,135
Bank Jabar	85,590	196,795
Standard Chartered Bank	177,800	142,500
Bank Danamon	63,915	130,560
Bank Muamalat Indonesia	9,000	115,420
Bank Mega	99,575	95,690
Bank Bukopin	89,255	90,780
Bank BTPN	43,255	55,100
Bank NISP	50,680	47,065
ABN AMRO Bank		35,000
Bank Internasional Indonesia		27,190
Deutsche Bank		17,300
Bank Syariah Mega Indonesia	17,000	15,700
Bank Yudha Bhakti	6,000	8,045
Bank Nusantara Parahyangan	4,000	3,000
Bank Permata		102
Citibank NA	310,100
Bank Bumiputera Indonesia	19,643
Total	1,085,378	1,179,382
Foreign currencies
Deutsche Bank	873,772	816,497
Citibank NA	202,883	632,122
Bank Bukopin		3,608
Bank Mega		1,805
Total	1,076,655	1,454,032
Total third parties	2,162,033	2,633,414
Total time deposits	5,012,040	7,788,646
Total cash and cash equivalents	5,374,684	8,315,836

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

6.
Range of interest rates per annum for time deposits is as follows:

Rupiah	2.00% - 14.50 %	4.00% - 16.00 %
Foreign currencies	0.60% - 3.70 %	1.65% - 5.10 %

| | The related parties which the Company places its funds are Government-owned banks. The Company
places a majority of its cash and cash equivalents in these banks because they have the most
extensive branch network in Indonesia and are considered to be financially sound banks as they
are owned by the Government. |
| --- | --- |
| | Refer to Note 46 for details of related party transactions. |
| 7. | TRADE RECEIVABLES |
| | Trade receivables from related parties and third parties arise from services provided to both
retail and non-retail customers. |

a.
Related parties:

Government agencies	432,982		518,943
PT Citra Sari Makmur	31,242		20,627
PT Patra Telekomunikasi Indonesia	2,921		13,751
PT Graha Informatika Nusantara	1,880		6,949
PT Pasifik Satelit Nusantara	2,401		4,286
Kopegtel	8,959		4,256
PT Aplikanusa Lintasarta	437		3,217
KSO VII	111,599
Others	22,224		33,713
Total	614,645		605,742
Allowance for doubtful accounts	(84,275	)	(85,053	)
Net	530,370		520,689

Trade receivables from certain related parties are presented net of the Companys liabilities to such parties due to legal right of offset in accordance with agreements with those parties.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TRADE RECEIVABLES (continued)

a.
Third parties:

Residential and business subscribers	3,452,176		3,551,270
Overseas international carriers	196,756		345,054
Total	3,648,932		3,896,324
Allowance for doubtful accounts	(601,393	)	(699,736	)
Net	3,047,539		3,196,588

b.
Related parties:

Up to 6 months	505,519		490,643
7 to 12 months	27,390		30,007
13 to 24 months	25,574		14,468
More than 24 months	56,162		70,624
Total	614,645		605,742
Allowance for doubtful accounts	(84,275	)	(85,053	)
Net	530,370		520,689

Third parties:

Up to 3 months	2,938,326		2,932,542
More than 3 months	710,606		963,782
Total	3,648,932		3,896,324
Allowance for doubtful accounts	(601,393	)	(699,736	)
Net	3,047,539		3,196,588

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TRADE RECEIVABLES (continued)

c.
Related parties

Rupiah	598,533		597,415
United States Dollar	16,112		8,327
Total	614,645		605,742
Allowance for doubtful accounts	(84,275	)	(85,053	)
Net	530,370		520,689

Third parties

Rupiah	3,444,914		3,535,904
United States Dollar	204,018		360,420
Total	3,648,932		3,896,324
Allowance for doubtful accounts	(601,393	)	(699,736	)
Net	3,047,539		3,196,588

d. Movements in the allowance for doubtful accounts

Beginning balance	443,892		522,066		685,668
Additions	342,895		478,005		453,045
Bad debts write-off	(264,721	)	(314,403	)	(353,924	)
Ending balance	522,066		685,668		784,789

| Management believes that the allowance for doubtful accounts is adequate to cover probable
losses on uncollectible accounts. |
| --- |
| Except for the amounts receivable from the Government agencies, management believes that
there were no significant concentrations of credit risk on these receivables. |
| Refer to Note 46 for details of related party transactions. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

8. INVENTORIES

Components	50,520		57,074
Allowance for obsolescence	(8,605	)	(4,360	)
Net	41,915		52,714
Modules	103,520		109,978
Allowance for obsolescence	(39,553	)	(43,549	)
Net	63,967		66,429
SIM cards, RUIM cards and prepaid voucher blanks	114,634		94,375
Allowance for obsolescence	(189	)	(189	)
Net	114,445		94,186
Total	220,327		213,329

Movements in the allowance for obsolescence are as follows:

Beginning balance	40,489		54,733		48,347
Additions	14,800		10,968		5,207
Inventory write-off	(556	)	(17,354	)	(5,456	)
Ending balance	54,733		48,347		48,098

| Components and modules represent telephone terminals, cables, transmission installation spare
parts and other spare parts. |
| --- |
| Management believes that the allowance is adequate to cover probable losses from decline in
inventory value due to obsolescence. |
| At December 31, 2006, inventory held by a certain subsidiary was insured against fire, theft
and other specified risks to PT Asuransi AIOI Indonesia for US$0.6 million. Management
believes that the insurance amount is adequate to cover such risks. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PREPAID EXPENSES

Frequency license	275,359	425,482
Salary	289,632	356,227
Rental	112,078	200,092
Insurance	66,449	40,710
Telephone directory issuance cost	26,527	29,692
Others	7,824	21,126
Total	777,869	1,073,329

Refer to Note 46 for details of related party transactions.

OTHER CURRENT ASSETS

Restricted time deposits Bank Mandiri (Note 46)	159,537	6,822

As of December 31, 2005, the balance consists of the Companys time deposits of US$13.6 million (equivalent to Rp133,926 million) and Rp25,611 million pledged as collateral for bank guarantees.

As of December 31, 2006, the balance consists of the Companys time deposits of US$0.1 million (equivalent to Rp937 million) and Rp4,208 million and Infomedias time deposit of Rp1,677 million pledged as collateral for bank guarantees.

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LONG-TERM INVESTMENTS


Percentage
of	Beginning		Share of	Translation	Ending
Ownership	Balance	Addition	Net Income	Adjustment	Balance
Equity method:
PT Citra Sari Makmur	25.00	60,116		2,480	3,658	66,254
PT Patra Telekomunikasi Indonesia	40.00	12,421	4,250	8,399		25,070
PT Pasifik Satelit Nusantara	35.50
		72,537	4,250	10,879	3,658	91,324
Cost method:
Bridge Mobile Pte. Ltd.	12.50	9,290				9,290
PT Batam Bintan Telekomunikasi	5.00	587				587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199				199
PT Mandara Selular Indonesia	1.33
		10,076				10,076
		82,613	4,250	10,879	3,658	101,400


Percentage			Share of
of	Beginning		Net Income		Translation		Ending
Ownership	Balance	Addition	(Loss)		Adjustment		Balance
Equity method:
PT Citra Sari Makmur	25.00	66,254		(7,556	)	(5,584	)	53,114
PT Patra Telekomunikasi Indonesia	40.00	25,070		937				26,007
PT Pasifik Satelit Nusantara	22.38
		91,324		(6,619	)	(5,584	)	79,121
Cost method:
Bridge Mobile Pte. Ltd.	12.50	9,290						9,290
PT Batam Bintan Telekomunikasi	5.00	587						587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199						199
PT Mandara Selular Indonesia	0.00
		10,076						10,076
		101,400		(6,619	)	(5,584	)	89,197

a.
CSM is engaged in providing Very Small Aperture Terminal (VSAT), network application
services and consulting services on telecommunications technology and related facilities.
As of December 31, 2005 and 2006, the carrying amount of investment in CSM was equal to the
Companys share in net assets of CSM.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

LONG-TERM INVESTMENTS (continued)

b.	PT Patra Telekomunikasi Indonesia (Patrakom)
	Patrakom is engaged in providing satellite communication system services, related services
and facilities to companies in the petroleum industry.
	On August 26, 2005, the Company purchased 10% of Patrakoms outstanding shares
from Indosat for Rp4,250 million, thereby increasing the Companys ownership interest
from 30% to 40%.
	As of December 31, 2005 and 2006, the carrying amount of investment in Patrakom was
approximate to the Companys share in net assets of Patrakom.
c.	PT Pasifik Satelit Nusantara (PSN)
	PSN is engaged in providing satellite transponder leasing and satellite-based communication
services in the Asia Pacific region.
	As of December 31, 2001, the Companys share of losses in PSN has exceeded the carrying
amount of the investment. Accordingly, the investment value has been reduced to nil.
	On August 8, 2003, as a result of share-swap transaction with PT Centralindo Pancasakti
Cellular, the Companys interest in PSN effectively increased to 43.69%. The Companys
decision to increase its ownership interest in PSN as part of the share-swap transactions
was premised on the Companys assessment that PSNs satellite services would allow it to
capitalize on a government program which called for the provision of telecommunication
services to remote areas of Indonesia.
	In 2005, the Companys ownership interest was diluted to 35.5% as a result of debt to
equity conversions consummated by PSN.
	On January 20, 2006, PSNs stockholders agreed to issue new shares to a new stockholder.
The issuance of new shares resulted in dilution of the Companys interest in PSN to 22.38%
d.	Bridge Mobile Pte. Ltd
	On November 3, 2004, Telkomsel together with six other international mobile operators in
Asia Pacific established Bridge Mobile Pte. Ltd. (Singapore), a company that is engaged in
providing regional mobile services in the Asia Pacific region.
	Telkomsel contributed US$1.0 million (equivalent to Rp9,290 million) which represents a
14.286% ownership interest.
	On April 14, 2005, Telkomsels ownership interest was diluted to 12.50% following issuance
of new shares by Bridge Mobile Pte. Ltd to a new stockholder.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

LONG-TERM INVESTMENTS (continued)

e.	PT Batam Bintan Telekomunikasi (BBT)
	BBT is engaged in providing fixed line telecommunication services at Batamindo Industrial
Park in Muka Kuning, Batam Island and at Bintan Beach International Resort and Bintan
Industrial Estate in Bintan Island.
f.	PT Pembangunan Telekomunikasi Indonesia (Bangtelindo)
	Bangtelindo is primarily engaged in providing consultancy services on the installation and
maintenance of telecommunications facilities.
g.	PT Mandara Selular Indonesia (Mobisel)
	Mobisel is engaged in providing mobile cellular services and related facilities. These
services were previously provided by the Company under a revenue-sharing arrangement with
PT Rajasa Hazanah Perkasa (RHP). The capital contribution made by the Company of Rp10,398
million represented a 25% equity ownership in Mobisel.
	As of December 31, 2002, the value of investment has been reduced to nil because the
Companys share of loss exceeded the carrying amount of investment in Mobisel.
	In July 2003 and January 2004, Mobisel carried out a series of debt to equity conversions
resulting in dilution of the Companys ownership interest to 6.4%.
	On December 20, 2004, Mobisels stockholders agreed
to issue 306,000,000 new Series B shares to a new stockholder and an existing stockholder. The issuance of 306,000,000 new
Series B shares resulted in dilution of the Companys interest in Mobisel to 3.63%.
	On May 27, 2005, the Companys ownership interest was further diluted to 1.33% following
the issuance of 1,179,418,253 new Series B shares by Mobisel.
	On January 13, 2006, the Company sold its entire ownership interest in Mobisel to Twinwood
Ventures Limited (third party) for Rp22,561 million. The gain on the sale amounted to
Rp22,561 million.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT

2005	Additions	Assets	Deductions		Reclassifications		2005
At cost
Direct acquisitions
Land	327,339	30,444		(22,104	)	(1,232	)	334,447
Buildings	2,170,055	65,622		(4,553	)	336,435		2,567,559
Switching equipment	10,360,100	324,748		(13,547	)	158,580		10,829,881
Telegraph, telex and data
communication equipment	213,855	2,410		(120	)	(353	)	215,792
Transmission installation and
equipment	26,922,143	846,944		(28,747	)	3,813,794		31,554,134
Satellite, earth station and
equipment	3,354,803	697,304		(427,836	)	1,319,733		4,944,004
Cable network	17,701,074	868,823		(20,853	)	148,456		18,697,500
Power supply	1,194,710	73,492		(7,198	)	51,391		1,312,395
Data processing equipment	3,786,741	261,442		(6,132	)	3,800,322		7,842,373
Other telecommunications
peripherals	824,634	69,469		(5,675	)	15,723		904,151
Office equipment	661,666	69,501		(1,772	)	(79,457	)	649,938
Vehicles	191,403	975		(5,090	)	(905	)	186,383
Other equipment	112,626	2,923				(5	)	115,544
Property under construction:
Buildings	53,412	235,354				(266,991	)	21,775
Switching equipment		13,172						13,172
Transmission installation and
equipment	175,131	7,518,740				(6,979,472	)	714,399
Satellite, earth station and
equipment	776,899					(776,766	)	133
Cable network	25,508	213				(21,950	)	3,771
Power supply	69	8,711				(8,719	)	61
Data processing equipment	16,681	2,167,465				(616,886	)	1,567,260
Other telecommunications
peripherals		37,825				(34,301	)	3,524
Leased assets
Vehicles	413					(83	)	330
Transmission installation and equipment		257,380						257,380
Total	68,869,262	13,552,957		(543,627	)	857,314		82,735,906
Accumulated depreciation and impairment:
Direct acquisitions
Buildings	952,638	143,894		(1,789	)	15,095		1,109,838
Switching equipment	5,601,273	766,155		(13,547	)	118,711		6,472,592
Telegraph, telex and data
communication equipment	198,653	3,004		(120	)	(10	)	201,527
Transmission installation and
equipment	8,208,259	3,281,208	552,828	(15,239	)	(35,774	)	11,991,282
Satellite, earth station and
equipment	1,532,282	220,658		(427,836	)	(19,043	)	1,306,061
Cable network	8,235,661	2,019,324		(21,012	)	97,771		10,331,744
Power supply	904,780	84,438		(7,198	)	50,170		1,032,190
Data processing equipment	2,112,821	796,921		(6,132	)	34,521		2,938,131
Other telecommunications
peripherals	712,578	76,882		(5,675	)	10,198		793,983
Office equipment	562,757	43,274		(1,562	)	(61,331	)	543,138
Vehicles	180,864	4,758		(5,089	)	(932	)	179,601
Other equipment	94,527	7,042				(5	)	101,564
Leased assets
Vehicles	70	65				(65	)	70
Transmission installation and equipment		27,002	63,940					90,942
Total	29,297,163	7,474,625	616,768	(505,199	)	209,306		37,092,663
Net Book Value	39,572,099							45,643,243

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

12. PROPERTY, PLANT AND EQUIPMENT (continued)

2006	KSO VII	Additions	Deductions		Reclassifications		2006
At cost
Direct acquisitions
Land	334,447		64,891					399,338
Buildings	2,567,559	1,944	108,868			80,302		2,758,673
Switching equipment	10,829,881	241,040	129,011	(1,950	)	10,137,530		21,335,512
Telegraph, telex and data
communication equipment	215,792			(2,172	)	(23,919	)	189,701
Transmission installation and
equipment	31,554,134	107,014	760,937	(785,515	)	2,984,732		34,621,302
Satellite, earth station and equipment	4,944,004	9,757	290,668	(3	)	324,383		5,568,809
Cable network	18,697,500	909,876	538,985	(6,316	)	(624,728	)	19,515,317
Power supply	1,312,395	9,719	65,904	(1,823	)	1,883,491		3,269,686
Data processing equipment	7,842,373	6,438	308,528	(18,964	)	(2,805,528	)	5,332,847
Other telecommunications peripherals	904,151	2,381	14,183	(2	)	(294,082	)	626,631
Office equipment	649,938	70	98,709	(2,235	)	13,477		759,959
Vehicles	186,383	580	7,173	(4,718	)	(17,640	)	171,778
Other equipment	115,544	69	2,914			(5,434	)	113,093
Property under construction:
Buildings	21,775		72,620			(59,290	)	35,105
Switching equipment	13,172		3,806,405			(2,484,621	)	1,334,956
Transmission installation and
equipment	714,399		9,952,261			(7,679,566	)	2,987,094
Satellite, earth station and
equipment	133					(133	)
Cable network	3,771		4,366	(5,375	)	4,397		7,159
Power supply	61		743,403			(725,820	)	17,644
Data processing equipment	1,567,260		121,201			(1,688,445	)	16
Other telecommunications
peripherals	3,524					(3,524	)
Leased assets
Vehicles	330					(330	)
Transmission installation and
equipment	257,380					8,440		265,820
Total	82,735,906	1,288,888	17,091,027	(829,073	)	(976,308	)	99,310,440
Accumulated depreciation and impairment
Direct acquisitions
Buildings	1,109,838		172,492			7,690		1,290,020
Switching equipment	6,472,592		2,412,237	(1,950	)	2,312,126		11,195,005
Telegraph, telex and data
communication equipment	201,527		463	(2,172	)	(14,082	)	185,736
Transmission installation and equipment	11,991,282		2,889,113	(345,654	)	(2,370,798	)	12,163,943
Satellite, earth station and equipment	1,306,061		411,947	(3	)	229,870		1,947,875
Cable network	10,331,744		1,760,530	(3,691	)	(592,705	)	11,495,878
Power supply	1,032,190		224,572	(1,523	)	245,196		1,500,435
Data processing equipment	2,938,131		1,031,187	(18,964	)	(262,154	)	3,688,200
Other telecommunications
peripherals	793,983		17,121	(2	)	(223,557	)	587,545
Office equipment	543,138		41,676	(2,235	)	10,459		593,038
Vehicles	179,601		3,663	(4,718	)	(17,528	)	161,018
Other equipment	101,564		5,205			(5,558	)	101,211
Leased assets
Vehicles	70					(70	)
Transmission installation and
equipment	90,942		42,534					133,476
Total	37,092,663		9,012,740	(380,912	)	(681,111	)	45,043,380
Net Book Value	45,643,243							54,267,060

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PROPERTY, PLANT AND EQUIPMENT (continued)

Proceeds from sale of property, plant and equipment	84,621	17,269
Net book value	38,428	7,806
Gain on disposal	46,193	9,463

| In accordance with the amended and restated KSO VII agreement with BSI (Note 5e) dated October
19, 2006, the ownership rights to the acquired property, plant and equipment in KSO VII are
legally retained by BSI until the end of the KSO period (December 31, 2010). As of December
31, 2006, the net book value of these property, plant and equipment items was Rp1,156,829
million. |
| --- |
| In accordance with the amended and restated KSO IV agreement with MGTI (Note 5d), the
ownership rights to the acquired property, plant and equipment in KSO IV are legally retained
by MGTI until the end of the KSO period (December 31, 2010). As of December 31, 2005 and 2006,
the net book value of these property, plant and equipment was Rp1,469,700 million and
Rp1,127,365 million, respectively. |
| In the first quarter of 2005, the Government of Indonesia issued a series of regulations in
its efforts to rearrange the frequency spectra utilized by the telecommunications industry.
This action has resulted in the Company not being able to utilize certain frequency spectra
it had used to support its fixed wireline cable network by the end of 2006. As a result of
these regulations, certain of the Companys cable network facilities within the fixed wireline
segment, which comprised primarily of Wireless Local Loop (WLL) and Approach Link equipment
operating in the affected frequency spectra, could no longer be used by the end of 2006. The
Company had accordingly shortened its estimate of the remaining useful lives for WLL and
Approach Link equipment in the first quarter in 2005 and depreciated the remaining net book
value of these assets through December 31, 2006. The effect of this change in estimate
increased depreciation expense by Rp471,187 million (Rp329,831 million after tax) and
Rp240,398 million (Rp168,279 million after tax) in 2005 and 2006, respectively. |
| Further, on August 31, 2005, the Minister of Communication and Information Technology (MoCI)
issued a press release which announced that in order to conform with the international
standards and as recommended by the International Telecommunications Union
Radiocommunication Sector (ITU-R), the 1900 MHz frequency spectrum would only be used for
the International Mobile Telecommunications-2000 (IMT-2000 or 3G) network. In its press
release, the MoCI also announced that the CDMA-based technology network which the Company used
for its fixed wireless services could only operate in the 800 MHz frequency spectrum. The
Company utilizes the 1900 MHz frequency spectrum for its fixed wireless network in Jakarta and
West Java areas while for other areas, the Company utilizes the 800 MHz frequency spectrum.
As a result of this Governments decision, the Companys Base Station System (BSS) equipment
in Jakarta and West Java areas which are part of transmission installation and equipment for
fixed wireless network could no longer be used by the end of 2007. Management expects the BSS
equipment will be completely replaced with BSS equipment operating in 800 MHz by the end of
June 2007. On January 13, 2006, the MoCI issued MoCI Regulation No. 01/PER/M.KOMINFO/1/2006
which reaffirmed the Governments decision that the Companys fixed wireless network could
only operate in the 800 MHz frequency spectrum and that the 1900 MHz will be allocated for 3G
network. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

| 12. |
| --- |
| Following the preceding Governments decisions, the Company reviewed the recoverable amount of
cash-generating unit to which the affected fixed wireless asset belongs. The recoverable
amount was estimated using value in use which represented the present value of estimated
future cash flows from cash-generating unit using a pretax discount rate of 16.89%,
representing the Companys weighted average cost of capital as of December 31, 2005. In
determining cash-generating unit to which an asset belongs, assets were grouped at the lowest
level that included the asset and generated cash inflows that were largely independent of the
cash inflows from other assets or group of assets. Based on this review, in 2005, the Company
recognized a write-down of Rp616,768 million related to transmission installation and
equipment of fixed wireless assets and recorded the amount as a component of operating
expenses in the consolidated statements of income. In addition, the Company recognized a loss
relating to non-cancelable contracts for procurement of the 1900 MHz transmission installation
and equipment in Jakarta and West Java areas amounting to Rp79,359 million. The loss was
included as a component of operating expenses in the consolidated statement of income with a
corresponding liability included in Accrued Expenses in the consolidated balance sheet. In
addition, the Company changed its estimate of the remaining useful lives for the Jakarta and
West Java BSS equipment and depreciates the remaining net book value of these assets through
June 30, 2007. The effect of this change in estimate increased depreciation expense by
Rp159,042 million (Rp111,329 million after tax) and Rp173,826 million (Rp121,678 million after
tax) in 2005 and 2006, respectively. |
| On August 18, 2005, the Company disposed of its Palapa B-4 satellite which had been fully
depreciated as of July 1, 1999. On November 17, 2005, the Companys Telkom-2 satellite was
launched, and on December 20, 2005, the Telkom-2 satellite passed the final acceptance test
and was put into service. |
| As of December 31, 2006, the Company operated two satellites, Telkom-1 and Telkom-2 primarily
providing backbone transmission links for its network and earth station satellite up-linking
and down-linking services to domestic and international users. As of December 31, 2006, there
were no events or changes in circumstances that would indicate that the carrying amount of the
Companys satellites may not be recoverable. |
| Interest capitalized to property under construction amounted to Rp57,690 million, Rp nil and
Rp nil for 2004, 2005 and 2006, respectively. |
| Foreign exchange loss capitalized as part of property under construction amounted to Rp74,283
million, Rp nil and Rp nil in 2004, 2005, 2006, respectively. |
| In 2006, certain accounts related to telecommunication equipments of subsidiaries were
reclassified to a more detail group of assets to conform with the Companys presentation. The
reclassification have no impact to the economic useful life of the assets. |
| The Company and its subsidiaries own several pieces of land located throughout Indonesia with
Building Use Rights (Hak Guna Bangunan or HGB) for a period of 20-30 years, which will
expire between 2007 and 2036. Management believes that there will be no difficulty in
obtaining the extension of the landrights when they expire. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

| 12. |
| --- |
| The Company was granted the right to use certain parcels of land by the Ministry of
Communications and Information Technology of the Republic of Indonesia (formerly Ministry of
Tourism, Post and Telecommunications) where they are still under the name of the Ministry of
Tourism, Post and Telecommunications and the Ministry of Transportation of the Republic of
Indonesia. The transfer to the Company of the legal title of ownership on those parcels of
land is still in progress. |
| As of December 31, 2006, property, plant and equipment, of the Company and its subsidiaries,
except for land, were insured with PT Asuransi Jasa Indonesia (Jasindo), PT Asuransi
Ramayana, PT Asuransi Wahana Tata and PT Asuransi Export Indonesia (ASEI) against fire,
theft and other specified risks. Total cost of assets being insured amounted to Rp27,794,300
million and US$3.84 billion, which was covered by Sum Insured Basis with maximum loss claim of
Rp2,064,903 million and covered by First Loss Basis of US$250 million and Rp824,000 million
including business recovery of Rp324,000 million with Automatic Reinstatement of Loss Clausul.
In addition, the Telkom-1 and Telkom-2 satellite were insured separately for US$45.2 million
and US$57.9 million respectively. Management believes that the insurance coverage is adequate. |
| As of December 31, 2006 the completion of assets construction was around 25% of contract
value. Management believes that there is no impediment to the completion of the construction
in progress. |
| On December 26, 2004, telecommunication facilities of the Company and its subsidiaries in
Banda Aceh and certain areas nearby in Nanggroe Aceh Darussalam with a net book value of
Rp54,863 million were destroyed by earthquake and tsunami. For the year ended December 31,
2004, the Company has recorded the loss in Other income (expenses) in the consolidated
statements of income. These telecommunication facilities were covered by insurance. In 2005,
the Company and its subsidiaries received a portion of its insurance claims amounting to
Rp27,580 million and recorded this amount within Other income (expenses) in the consolidated
statements of income. |
| On May 27, 2006, Yogyakarta within Division Regional IV Central Java experienced an earthquake
where an insurance claim amounting to Rp14,934 million has been made. Operationally, the
facilities have been re-operated gradually since June 2006. |
| On July 17, 2006, the Pangandaran, area of Division Regional III West Java and Banten
experienced a tsunami with the estimated total loss of 368 million. The Company did not file a
claim since the estimated total loss still below the deductible level. |
| In 2006, Telkomsel exchanged its certain infrastructures equipment with a net book value of
Rp440,355 million for new equipment with a value of Rp440,357 million. The resulting gain of
Rp2 million was charged to current operation. |
| Certain property, plant and equipment of the Company and subsidiaries have been pledged as
collateral for lending agreements (Notes 20 and 24). |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

| 12. |
| --- |
| The Company has lease commitments for certain transmission installation and equipment, and
vehicles with the option to purchase the leased assets at the end of the lease terms. Future
minimum lease payments for the assets under capital leases as of December 31, 2005 and 2006
are as follows: |

Year — 2006	73,443
2007	73,443		73,443
2008	73,443		73,443
2009	73,443		73,443
2010	73,443		73,443
2011	73,443		73,443
Later	69,332		69,332
Total minimum lease payments	509,990		436,547
Interest	(258,252	)	(198,904	)
Net present value of minimum lease payments	251,738		237,643
Current maturities (Note 21a)	(16,201	)	(20,535	)
Long-term portion (Note 21b)	235,537		217,108

PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS

2005	Additions	Reclassifications		2005
At cost:
Land	3,382	46			3,428
Buildings	13,422	338	(5,739	)	8,021
Switching equipment	418,137	25,419	(168,521	)	275,035
Transmission installation
and equipment	259,119	36,214	(11,895	)	283,438
Cable network	396,140	13,629	(141,356	)	268,413
Other telecommunications
peripherals	103,497	126,187	(60,380	)	169,304
Total	1,193,697	201,833	(387,891	)	1,007,639
Accumulated depreciation:
Land	1,601	170			1,771
Buildings	7,077	480	(3,191	)	4,366
Switching equipment	286,122	25,421	(125,854	)	185,689
Transmission installation
and equipment	68,966	26,223	(11,895	)	83,294
Cable network	227,517	21,257	(134,648	)	114,126
Other telecommunications
peripherals	103,287	22,563	(56,862	)	68,988
Total	694,570	96,114	(332,450	)	458,234
Net Book Value	499,127				549,405

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PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS (continued)

2006	KSO VII	Additions	Reclassifications		2006
At cost:
Land	3,428			1,218		4,646
Buildings	8,021			(2,911	)	5,110
Switching equipment	275,035	108,810	27,294	(45,846	)	365,293
Transmission installation
and equipment	283,438	19,219	7,837	(14,129	)	296,365
Cable network	268,413	321,756	56,119	(27,443	)	618,845
Other telecommunications
peripherals	169,304	2,420	196	(3,166	)	168,754
Total	1,007,639	452,205	91,446	(92,277	)	1,459,013
Accumulated depreciation:
Land	1,771		212	720		2,703
Buildings	4,366		360	(1,800	)	2,926
Switching equipment	185,689		25,774	(39,122	)	172,341
Transmission installation
and equipment	83,294		33,870	(13,911	)	103,253
Cable network	114,126		30,949	(20,335	)	124,740
Other telecommunications
peripherals	68,988		21,597	(3,167	)	87,418
Total	458,234		112,762	(77,615	)	493,381
Net Book Value	549,405					965,632

In accordance with revenue-sharing arrangements agreements, the ownership rights to the property, plant and equipment under revenue-sharing arrangements are legally retained by the investors until the end of the revenue-sharing period.

The balances of unearned income on revenue-sharing arrangements as of December 31, 2004, 2005 and 2006 are as follows:

Gross amount	1,193,697		1,007,639		1,459,013
Accumulated amortization:
Beginning balance	(984,954	)	(833,365	)	(582,155	)
Addition (Note 36)	(82,033	)	(136,681	)	(151,961	)
Deduction	233,622		387,891		92,277
Ending balance	(833,365	)	(582,155	)	(641,839	)
Net	360,332		425,484		817,174

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14.
Advances and other non-current assets as of December 31, 2005 and 2006 consist of:

Prepaid rent, long-term portion	428,564	621,834
Advances for purchase of property, plant and
equipment	253,123	354,730
Equipment not used in operation-net	4,236	203,002
Restricted cash	90,749	91,862
Deferred landrights charges	87,863	82,529
Security deposits	30,570	32,072
Others	50,932	68,254
Total	946,037	1,454,283

| | As of December 31, 2006, equipment not used in operation represented Base Transceiver Station
(BTS) and other equipments of the Company and Telkomsel temporarily taken out from
operations but planned to be reinstalled. |
| --- | --- |
| | During 2006, the Company and Telkomsel wrote off certain equipment with a total net book value
of Rp58,252 million and charged depreciation expense to current operations amounting to
Rp52,841 million. |
| | As of December 31, 2005 and 2006, restricted cash represented cash received from the
Government relating to compensation for early termination of exclusive rights to be used for
construction of certain infrastructures (Note 30) and time deposits with original maturities
of more than one year pledged as collateral for bank guarantees. |
| | Deferred landrights charges represented costs to extend the contractual life of the landrights
which have been deferred and amortized over the contractual life. |
| | Refer to Note 46 for details of related party transactions. |
| 15. | GOODWILL AND OTHER INTANGIBLE ASSETS |
| | The changes in the carrying amount of goodwill and other intangible assets for the years ended
December 31, 2005 and 2006 are as follows: |

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GOODWILL AND OTHER INTANGIBLE ASSETS (continued)


		intangible
	Goodwill	assets		License		Total
Gross carrying amount:
Balance as of December 31, 2005	106,348		7,151,111				7,257,459
Accumulated amortization:
Balance as of December 31, 2004	(76,221	)	(1,769,813	)			(1,846,034	)
Amortization expense for 2005	(21,270	)	(896,883	)			(918,153	)
Balance as of December 31, 2005	(97,491	)	(2,666,696	)			(2,764,187	)
Net book value	8,857		4,484,415				4,493,272
Weighted-average amortization period	5 years	7.97 years
Gross carrying amount:
Balance as of December 31, 2005	106,348		7,151,111				7,257,459
Addition-3G License Telkomsel					436,000		436,000
Addition-KSO
VII acquisition (Note 5e)			451,736				451,736
Balance as of December 31, 2006	106,348		7,602,847		436,000		8,145,195
Accumulated amortization:
Balance as of December 31, 2005	(97,491	)	(2,666,696	)			(2,764,187	)
Amortization expense for 2006	(8,857	)	(923,867	)	(11,679	)	(944,403	)
Balance as of December 31, 2006	(106,348	)	(3,590,563	)	(11,679	)	(3,708,590	)
Net book value			4,012,284		424,321		4,436,605
Weighted-average amortization period	5 years	7.58 years		9.5 years

Other intangible assets resulted from the acquisitions of Dayamitra, Pramindo, AWI, KSO IV and KSO VII, and represented the rights to operate the business in the KSO areas (Note 5). Goodwill resulted from the acquisition of GSD (Note 1c).

The estimated annual amortization expense relating to other intangible assets for each of the next four years beginning from January 1, 2007 would be Rp1,003,071 million per year.

In February 2006, Telkomsel obtained a 3G mobile cellular operating license for 2.1 GHz frequency bandwidth for a 10-year period, which is extendable subject to evaluation. The upfront fee for the 3G license amounted to Rp436,000 million was recognized as an intangible asset and is amortized over the term of the 3G license.

As of December 31, 2006, management believed that there was no indication of impairment.

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16.
Escrow accounts as of December 31, 2005 and 2006 consist of the following:

Citibank N.A., Singapore	126,128
Bank Mandiri	6,369
Bank Danamon		1,849
Bank Negara Indonesia		116
Bank Internasional Indonesia		108
	132,497	2,073

a.	Citibank N.A., Singapore
	This escrow account with Citibank N.A., Singapore (Dayamitra Escrow Agent) was
established to facilitate the payment of the Companys obligations under the Conditional
Sale and Purchase Agreement and Option Agreement entered between the Company and the
selling stockholders of Dayamitra (Note 5a).
	In 2004, the Company repaid the entire obligations under the Conditional Sale and
Purchase Agreement, and since then this escrow account had been used to facilitate the
payment of the Companys obligations under the Option Agreement with TM Communications
(Hk) Ltd.
	The escrow account earned interest at LIBOR minus 0.75% per annum, computed on a daily
basis. The interest income earned was included as part of the escrow funds. The remaining
funds available would be transferred to the Company after all of the obligations related
to the Dayamitra transaction had been satisfied. As of March 27, 2006, the Company has
fully repaid the option strike price.
b.	Bank Mandiri
	The escrow account with Bank Mandiri was established by Dayamitra in relation with the
credit facilities from Bank Mandiri (Note 24b).
	On September 23, 2006, the Company repaid the entire obligation and the remaining funds
available in the escrow account was transferred to the Company on December 6, 2006.

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ESCROW ACCOUNTS (continued)

| c. |
| --- |
| The escrow accounts with Bank Danamon, Bank Internasional Indonesia, and Bank Negara
Indonesia were established in relation with the revenue sharing arrangement in
telecommunications equipment in Divre VII East Indonesia. |

TRADE PAYABLES


Related parties
Concession fees	648,950	818,121
Payables to other telecommunications providers	99,980	102,702
Purchases of equipment, materials and services	265,459	195,673
Total	1,014,389	1,116,496
Third parties
Purchases of equipment, materials and services	4,011,444	5,499,254
Payables to other telecommunication providers	163,646	111,963
Payables related to revenue-sharing
arrangements	106,195	190,240
Total	4,281,285	5,801,457
Total	5,295,674	6,917,953

Trade payables by currency are as follows:

Rupiah	3,112,303	6,636,507
U.S. Dollar	1,381,473	259,996
Euro	796,343	18,377
Singapore Dollar	33	2,431
Great British Pound Sterling	14	630
Myanmar Kyat		12
Japanese Yen	5,508
Total	5,295,674	6,917,953

Refer to Note 46 for details of related party transactions.

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ACCRUED EXPENSES

Early retirement program		1,528,429
Salaries and benefits	452,413	710,814
Operations, maintenance and telecommunications
services	411,075	555,653
General, administrative and marketing	444,101	492,054
Interest and bank charges	134,299	188,748
Loss on procurement commitments (Note 12)	79,359
Total	1,521,247	3,475,698

| | Based on the Board of Directors resolutions dated December 20, 2006 on early retirement, the
Company planned an early retirement program for interested and eligible employees. The early
retirement program has been communicated to all employees, and the Companys calculation was
based on the number of eligible employees by grade who were expected to enroll. Accrued early
retirement benefit as of December 31, 2006 amounting to Rp1,528,429 million, consisted of
Rp1,461,150 million (Note 37) charged to the 2006 consolidated statement of income and
Rp67,279 million in a reclassification from the balance for accrued long service awards. |
| --- | --- |
| 19. | UNEARNED INCOME |

Prepaid pulse reload vouchers	1,582,762	1,976,868
Other telecommunication services	3,917	3,492
Others	6,039	57,412
Total	1,592,718	2,037,772

SHORT-TERM BANK LOANS

Bank Central Asia	170,000	233,334
Bank Mandiri		233,333
Bank Negara Indonesia		200,000
Bank Niaga	3,800	13,323
Bank Bumiputera Indonesia		8,000
Total	173,800	687,990

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SHORT-TERM BANK LOANS (continued)

a.	Bank Central Asia
	On December 3, 2004, Telkomsel entered into a loan agreement with Deutsche Bank AG,
Jakarta (as Arranger and Agent) and Bank Central Asia (as Lender) with a total
facility of Rp170,000 million. Under the agreement, the Lender may transfer its rights,
benefits and obligations to any bank or financial institution by delivering the Transfer
Agreement to the Agent and notifying Telkomsel. The facility carried interest at a rate
equal to the 3-month Certificates of Bank Indonesia plus 1% (i.e. 13.09% as of December
31, 2005) payable quarterly in arrears and unsecured. The loan was due on February 1,
2006. As of December 31, 2005, the principal outstanding amounted to Rp170,000 million. On
February 1, 2006, Telkomsel repaid the entire loan balance and the loan agreement was
terminated.
	On August 15, 2006, Telkomsel signed a loan agreement with Bank Central Asia for a
Rp350,000 million short-term facility. The loan amount under the short-term facility would
be repaid in three quarterly installments commencing after three months from the
availability period (i.e. the earlier of November 15, 2006 and the date when the facility
had been fully drawn down). The loan bears a floating interest rate of three-month
Certificate of Bank Indonesia plus 1.5% (i.e., 11.00% as of December 31, 2006) and is
unsecured. The principal outstanding as of December 31, 2006 amounted to Rp233,334
million.
b.	Bank Mandiri
	On August 15, 2006, Telkomsel signed a loan agreement with Bank Mandiri for a Rp350,000
million short-term facility. The short-term facility would be repaid in three quarterly
installment commencing after three months from the availability period (i.e the earlier of
November 15, 2006 or the date when the facility had been fully drawn down). The loan
bears a floating interest rate of three-month Certificate of Bank Indonesia plus 1.5%
(i.e., 11.00% as of December 31, 2006) and is unsecured. The principal outstanding as of
December 31, 2006 amounted to Rp233,333 million.
c.	Bank Negara Indonesia (BNI)
	On August 15, 2006, Telkomsel signed a loan agreement with BNI for a Rp300,000 million
short-term facility. The short-term facility would be repaid in three quarterly
installments commencing after three months from the availability period (i.e the earlier
of November 15, 2006 and the date when the facility had been fully drawn down). The loan
bears a floating interest rate of three-month Certificate of Bank Indonesia plus 1.5%.
(i.e., 11.00% as of December 31, 2006) and is unsecured. The principal outstanding as of
December 31, 2006 amounted to Rp200,000 million.

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SHORT-TERM BANK LOANS (continued)

d.	Bank Niaga
	On April 25, 2005, Balebat entered into a loan agreement for a 12% per annum fixed rate
revolving credit facility of Rp800 million and an investment credit facility of Rp1,600
million (Note 24g). These credit facilities are secured by Balebats property located in
West Java up to a maximum of Rp3,350 million.The applicable fixed interest rate and
maturity date of the revolving credit facility was amended on July 26, 2005 to 12.5% per
annum and May 30, 2006, respectively and subsequently on June 13, 2006 to 16.5% per annum
and May 30, 2007, respectively. Based on the amendment on June 13, 2006, the revolving
credit facility amounted to Rp800 million was combined with the short-term fixed credit
facility of Rp4,000 million as described in Note 24g. Additionally, Balebat obtained
credit facility of Rp500 million at a fixed interest rate of 16.75% per annum maturing on
May 30, 2007. As of December 31, 2005 and 2006, the principal outstanding balance amounted
to Rp800 million and Rp1,323 million, respectively.
	On October 18, 2005, GSD entered into a loan agreement with Bank Niaga for a short-term
facility of Rp3,000 million for a one-year term. The loan facility was secured by certain
GSDs property, carried interest at 14.5% per annum and would expire on October 18, 2006.
On June 7, 2006, the loan agreement was amended to increase the maximum facility amount
and interest rate to Rp8,000 million and 16.25% per annum, respectively. On November 3,
2006, the loan agreement was amended (2 nd amendment agreement) to change the
interest rate to 15.5% for the period October 18, 2006 to October 18, 2007. As of December
31, 2005 and 2006, the principal outstanding amounted to Rp3,000 million and Rp8,000
million, respectively.
	In October 2005, GSD also entered into a loan agreement with the Bank Niaga to obtain a
Rp12,000 million short-term facility, which would expire on October 18, 2006. The
borrowing under this facility carried interest at 14.5% per annum. On June 7, 2006, the
credit agreement was amended to reduce the maximum facility to Rp7,000 million and to
change the interest rate to 16.25% per annum. On November 3, 2006, the loan agreement was
amended (2 nd amendment agreement) to change the interest rate to 15.5% for the
period October 18, 2006 to October 18, 2007. The principal outstanding as of December 31,
2005 and 2006 was Rp nil and Rp4,000 million, respectively.
	The credit facilities of Rp8,000 million and Rp7,000 million are secured by GSDs property
located in Jakarta.
e.	Bank Bumiputera Indonesia
	On February 15, 2006, GSD entered into a loan agreement with Bank Bumiputera Indonesia
amounted to Rp8,000 million with interest at 17% per annum, unsecured and repayable by
monthly installments. The loan is payable within 12 months from the signing date and will
mature on February 15, 2007. As of December 31, 2006 the loan was fully drawn-down and the
principal outstanding amounted to Rp8,000 million.

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MATURITIES OF LONG-TERM LIABILITIES

a. Current maturities

Bank loans	24	634,542	1,669,146
Notes and Bonds	23	144,510	1,461,955
Deferred consideration for business combinations	25	862,394	1,054,095
Two-step loans	22	569,278	469,678
Obligations under capital leases	12	16,201	20,535
Total		2,226,925	4,675,409

b. Long-term portion

Notes	Total	2008	2009	2010	2011	Later
Two-step loans	22	4,006.9	432.1	419.3	396.0	368.6	2,390.9
Bank loans	24	2,487.9	1,450.9	717.8	213.1	106.1
Deferred consideration for
business combinations	25	3,537.1	1,102.4	1,141.4	1,188.1	105.2
Obligations under capital leases	12	217.1	26.0	33.0	41.9	116.2
Total		10,249.0	3,011.4	2,311.5	1,839.1	696.1	2,390.9

| 22. |
| --- |
| Two-step loans are loans, which were obtained by the Government from overseas banks and
consortium of contractors, which are then re-loaned to the Company. The loans entered into up
to July 1994 were recorded and are payable in Rupiah based on the exchange rate at the date of
drawdown. The loans are unsecured. Loans entered into after July 1994 are payable in their
original currencies and any resulting foreign exchange gain or loss is borne by the Company. |
| On December 15, 2004, the Company repaid a portion of its Rupiah denominated two-step loans
totaling Rp701,272 million before its maturity. Further, on December 24, 2004, the Company
repaid a portion of its U.S. Dollar denominated two-step loans amounting to US$48.8 million
and its entire Euro denominated two-step loans amounting to Euro14.5 million before their
maturities. These early repayments of two-step loans have been approved by the Ministry of
Finance of the Republic of Indonesia Directorate General of Treasury. |

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22.
The details of the two-step loans are as follows:

Creditors	Interest Rate — 2005	2006	Outstanding — 2005	2006
Overseas banks	3.10% - 10.71%	3.10% - 13.67%	5,250,829		4,434,041
Consortium of contractors	3.20%	3.20%	78,648		42,572
Total			5,329,477		4,476,613
Current maturities (Note 21a)			(569,278	)	(469,678	)
Long-term portion (Note 21b)			4,760,199		4,006,935

The details of two-step loans obtained from overseas banks as of December 31, 2005 and 2006 are as follows:

Currencies	Interest Rate — 2005	2006	Outstanding — 2005	2006
U.S. Dollar	4.00% - 6.81%	4.00% - 6.48%	2,232,752	1,795,782
Rupiah	8.30% - 10.71%	11.23% - 13.67%	1,794,149	1,592,198
Japanese Yen	3.10%	3.10%	1,223,928	1,046,061
Total			5,250,829	4,434,041

The loans are intended for the development of telecommunications infrastructure and supporting equipment. The loans are repayable in semi-annual installments and are due on various dates through 2024.

Details of two-step loans obtained from a consortium of contractors as of December 31, 2005 and 2006 are as follows:

Currencies	Interest Rate — 2005	2006	Outstanding — 2005	2006
Japanese Yen	3.20%	3.20%	78,648	42,572
Total			78,648	42,572

The consortium of contractors consists of Sumitomo Corporation, PT NEC Nusantara Communications and PT Humpuss Elektronika (SNH Consortium). The loans were obtained to finance the second digital telephone exchange project. The loans are repayable in semi-annual installments and are due on various dates through June 15, 2008.

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| 22. |
| --- |
| Two-step loans which are payable in Rupiah bear either a fixed interest rate or a floating
rate based upon the average interest rate on three-month Certificates of Bank Indonesia during
the six-months preceding the installment due date plus 1%, or a floating interest rate offered
by the lenders plus 5.25%. Two-step loans which are payable in foreign currencies bear either
a fixed rate interest or the floating interest rate offered by the lenders, plus 0.5%. |
| As of December 31, 2006, the Company has used all facilities under the two-step loans program
and the draw-down period for the two-step loans has expired. |
| The Company is required to maintain financial ratios as follows: |

| a. | Projected net revenue to projected debt service ratio should exceed 1.5:1 and 1.2:1
for the two-step loans originating from World Bank and Asian Development Bank (ADB),
respectively. |
| --- | --- |
| b. | Internal financing (earnings before depreciation and interest expenses) should
exceed 50% and 20% compared to annual average capital expenditures for loans originating
from World Bank and ADB, respectively. |

As of December 31, 2006, the Company complied with the above mentioned ratios.

NOTES AND BONDS

Bonds	991,850		997,137
Medium-term Notes	609,329		464,818
Total	1,601,179		1,461,955
Current maturities (Note 21a)	(144,510	)	(1,461,955	)
Long-term portion	1,456,669

| a. |
| --- |
| On July 16, 2002, the Company issued bonds amounting to Rp1,000,000 million. The bonds
were issued at par value and have a term of five years. The bonds bear interest at a fixed
rate of 17% per annum, payable quarterly beginning October 16, 2002 and secured with all
assets owned by the Company. The bonds are traded on the Surabaya Stock Exchange and will
mature on July 16, 2007. The trustee of the bonds is PT Bank Rakyat Indonesia Tbk
(effective from January 17, 2006 replacing PT Bank Negara Indonesia (Persero) Tbk) and the
custodian is PT Kustodian Sentral Efek Indonesia. |
| As of December 31, 2006, the ratings for the bonds were AAA and BB+ by Pefindo and
Standard and Poors, respectively. |
| As of December 31, 2005 and 2006, the outstanding principal amount of the bonds and the
unamortized bond issuance costs are as follows: |

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NOTES AND BONDS (continued)

a. Bonds (continued)

Principal	1,000,000		1,000,000
Bond issuance costs	(8,150	)	(2,863	)
Net	991,850		997,137

During the period when the bonds are outstanding, the Company is required to comply with all covenants or restrictions including maintaining consolidated financial ratios as follows:

1.	Debt service coverage ratio should exceed 1.5:1
2.	Debt to equity ratio should not exceed:

a.	3:1 for the period January 1, 2002 to December 31, 2002
b.	2.5:1 for the period January 1, 2003 to December 31, 2003
c.	2:1 for the period January 1, 2004 to the redemption date of the bonds

Debt to EBITDA ratio should not exceed 3:1

In 2005, the Company breached a covenant in the bonds indenture which stipulated that during the period when the bonds are outstanding, the Company would not make any loans to or for the benefit of any person which in aggregate exceed Rp500,000 million. On March 24, 2006, the Company obtained a written waiver from PT Bank Rakyat Indonesia Tbk, the trustee of the bonds, with regard to providing loans to certain subsidiaries which in aggregate exceed Rp500,000 million.

b. Medium-term Notes

On December 13, 2004, the Company entered into an agreement with PT ABN AMRO Asia Securities Indonesia, PT Bahana Securities, PT BNI Securities and PT Mandiri Sekuritas (collectively referred as Initial Purchasers) to issue medium-term notes (the Notes) for a total principal amount of Rp1,125,000 million. Proceeds from issuance of the Notes were used to finance the payment of the remaining balance of the borrowings assumed in connection with the AWI acquisition amounting to US$123.0 million.

The Notes consist of four Series with the following maturities and interest rates:

Series — A	290,000	Maturity — June 15, 2005	7.70 %
B	225,000	December 15, 2005	7.95 %
C	145,000	June 15, 2006	8.20 %
D	465,000	June 15, 2007	9.40 %
Total	1,125,000

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23. NOTES AND BONDS (continued)

| b. |
| --- |
| Interest on the Notes is payable semi-annually beginning June 15, 2005 through June 15,
2007. The Notes are unsecured and will at all times rank pari passu with other unsecured
debts of the Company. The Company may at any time, before the maturity dates of the Notes,
repurchase the Notes in whole or in part. |
| On June 15, 2005, December 15, 2005 and June 15, 2006, the Company repaid the Series A,
Series B and Series C Notes. |
| As of December 31, 2005 and 2006, the outstanding principal and unamortized debt issuance
costs are as follows: |

Principal	610,000		465,000
Debt issuance costs	(671	)	(182	)
	609,329		464,818
Current maturities	(144,510	)	(464,818	)
Long-term portion	464,819

As of December 31, 2006, the Pefindos rating for the Notes was AAA.

During the period when the Notes are outstanding, the Company must comply with all covenants or restrictions including maintaining financial ratios as follows:

1.	Debt service coverage ratio should exceed 1.5:1
2.	Debt to equity ratio should not exceed 2:1
3.	Debt to EBITDA ratio should not exceed 3:1

The Company complied with the covenants for the whole financial years.

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24.
The details of long-term bank loans as of December 31, 2005 and 2006 are as follows:

			2005
		2006	Outstanding		Outstanding
			Original		Original
		Total Facility	Currency	Rupiah	Currency	Rupiah
Lenders	Currency	(in millions)	(in millions)	Equivalent	(in millions)	Equivalent
The
Export-Import Bank of Korea	US$	124.0	117.6	1,156,296	105.8	952,842
Bank Mandiri	Rp	950,000.0		14,918		950,000
Bank Central Asia	Rp	923,000.0		86,093		778,698
Citibank N.A.	US$	113.3	62.5	614,501	39.2	352,612
	Euro	73.4	36.7	427,718	22.0	260,994
	Rp	500,000.0				500,000
Bank BNI	Rp	300,000.0				300,000
Consortium of banks	Rp	150,000.0		74,890		32,606
Lippo Bank	Rp	18,500.0				18,401
Bank Niaga	Rp	11,300.0		7,229		6,705
Bank Bukopin	Rp	5,300.0		5,001		4,201
Total				2,386,646		4,157,059
Current maturities of bank loans (Note 21a)				(634,542	)	(1,669,146	)
Long-term portion (Note 21b)				1,752,104		2,487,913

| a. |
| --- |
| On August 27, 2003, the Company entered into a loan agreement with The Export-Import Bank
of Korea for a loan facility of US$124.0 million. The loan was used to finance the CDMA
procurement from the Samsung Consortium and the facility was available until April 2006.
The loan bears interest, commitment and other fees totaling 5.68%. The loan is unsecured
and payable in 10 semi-annual installments on June 30 and December 30 of each year
beginning in December 2006. As of December 31, 2005 and 2006, the principal outstanding
amounted to US$117.6 million (equivalent to Rp1,156,296 million) and US$105.8 million
(equivalent to Rp952,842 million), respectively. |

| b. |
| --- |
| On December 20, 2003, Dayamitra obtained a Rp40,000 million credit facility from Bank
Mandiri. The loan amount under the facility would be repaid on a quarterly basis
beginning from the end of the third quarter of 2004 until the end of the fourth quarter
of 2006 and carried interest at 14% per annum which would be subject to change to reflect
any changes in the market rate (14% as of December 31, 2005). The loan was obtained to
finance the construction of the Fixed Wireless CDMA project pursuant to the procurement
agreement entered into between Dayamitra and Samsung Electronic Co. Ltd. As of December
31, 2005, the principal outstanding under this facility was Rp14,328 million and the loan
was fully repaid in July 2006. |

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24. BANK LOANS (continued)

| b. |
| --- |
| The above loan was collateralized by Dayamitras telecommunications equipment/network
with the CDMA technology financed by these facilities, and Dayamitras share in the DKSOR
of KSO VI. In addition, Dayamitra was required to maintain a minimum balance of Rp6,000
million in an escrow account established to facilitate loan repayments (Note 16b). |
| On March 13, 2003, Balebat entered into a loan agreement with Bank Mandiri for a facility
of Rp2,500 million. This facility was secured by Balebats operating equipment and
matured in July 2006. As of December 31, 2005, the interest rate charged on the loan was
15% per annum, and was payable on a monthly basis. The principal was repayable by monthly
installments. As of December 31, 2005, the principal outstanding under this facility
amounted to Rp590 million and the loan was fully repaid in July 2006. |
| On March 20, 2006, Telkomsel signed a loan agreement with Bank Mandiri for a facility of
Rp600,000 million. The loan is payable to Bank Mandiri in five (5) equal semi-annual
installments beginning six (6) months after the end of availability period (the earlier
of March 20, 2007 and the date on which the facility has been fully drawn). The loan
bears floating interest rate of three-month Certificate of Bank Indonesia plus 1.75%
(i.e., 11.25% as of December 31, 2006) and unsecured. The principal outstanding as of
December 31, 2006 amounted to Rp600,000 million. |
| On August 15, 2006, Telkomsel signed a medium-term facility loan agreement with Bank
Mandiri of Rp350,000 million. This facility is in 5 quarterly installments commencing six
months after the end of the availability period (the earlier of August 15, 2007 or the
date when the facility has been fully drawn down). The loan bears floating interest rate
of three-month Certificate of Bank Indonesia plus 1.5% (i.e., 11.00% as of December 31,
2006) and unsecured. The principal outstanding as of December 31, 2006 amounted to
Rp350,000 million. |

| c. |
| --- |
| On April 10, 2002, the Company entered into a Term Loan Agreement HP Backbone Sumatra
Project with Bank Central Asia, providing a total facility of Rp173,000 million. The
facility was obtained to finance the Rupiah portion of the high performance backbone
network in Sumatra pursuant to the Partnership Agreement dated November 30, 2001 with
PT Pirelli Cables Indonesia and PT Siemens Indonesia. |
| The amounts drawn from the facility bear interest at 4.35% plus the three-month time
deposit rate (i.e 13.27% and 13.18% as of December 31, 2005 and 2006, respectively). The
loans would be repaid in twelve unequal quarterly installments beginning in July 2004.
The loan was originally scheduled to mature in October 2006 but was amended in 2004 to
mature in April 2007 instead. |
| Total principal outstanding as of December 31, 2005 and 2006 was Rp86,093 million and
Rp28,698 million, respectively. |
| The loan facility from Bank Central Asia is not collateralized. |

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24. BANK LOANS (continued)

c.
During the period when the loan is outstanding, the Company is required to comply with all
covenants or restrictions including maintaining financial ratios as follows:

1.	EBITDA to interest ratio should exceed 4:1
2.	EBITDA to interest and principal ratio should exceed 1.5:1
3.	Debt to EBITDA ratio should not exceed 3:1

In 2005, the Company breached a covenant in the loan agreement which stipulates that the Company will not make any loans to or for the benefit of any person which in aggregate exceed Rp500,000 million. On April 24, 2006, the Company obtained a written waiver from Bank Central Asia with regard to providing loans to certain subsidiaries which in aggregate exceed Rp500,000 million.

On March 16, 2006, Telkomsel signed a loan agreement with Bank Central Asia for a facility of Rp400,000 million. The loan is payable to Bank Central Asia in five (5) equal semi-annual installments beginning six (6) months after the end of availability period (the earlier of March 16, 2007 and the date on which the facility has been fully drawn). The loan bears a floating an interest rate of three-month Certificate of Bank Indonesia plus 1.75% (i.e., 11.25% as of December 31, 2006) and unsecured. The principal outstanding as of December 31, 2006 amounted to Rp400,000 million.

On August 15, 2006, Telkomsel signed a medium-term facility loan agreement with Bank Central Asia for Rp350,000 million. This facility is payable for 5 quarterly installments commencing six months after the end of the availability period (the earlier of August 15, 2007 and the date when the facility has been fully drawn down). The loan bears a floating interest rate of three-month Certificate of Bank Indonesia plus 1.5% (i.e., 11.00% as of December 31, 2006) and unsecured. The principal outstanding as of December 31, 2006 amounted to Rp350,000 million.

d. Citibank N.A.

| 1. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with Siemens
Aktiengesellschaft (AG) (Note 51a.i), Telkomsel entered into the Hermes Export
Facility Agreement (Facility) with Citibank International plc (as Original Lender
and Agent) and Citibank N.A., Jakarta branch (Arranger) covering a total facility
of Euro76.2 million divided into several tranches. |
| The agreement was subsequently amended on October 15, 2003, amending the Facility
amount to Euro73.4 million and the payment dates. |

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24. BANK LOANS (continued)

d. Citibank N.A . (continued)

| 1. |
| --- |
| The interest rate per annum on the Facility is determined based on the EURIBOR plus
0.75% per annum (i.e., 3.33% as of December 31, 2005 and 4.48% as of December 31,
2006) and unsecured. Interest is payable semi-annually, starting on the utilization
date of the Facility (May 29, 2003). As of December 31, 2005 and 2006, the outstanding
balance was Euro36.7 million (equivalent to Rp427,718 million) and Euro22.0 million
(equivalent to Rp260,994 million), respectively. |
| The schedule of the principal payments on this long-term loan as of December 31, 2006
is as follows: |

	Amount — Euro	Rupiah
Year	(in millions)	equivalent
2007	14.7	173,996
2008	7.3	86,998
	22.0	260,994

High Performance Backbone (HP Backbone) Loans

| a. |
| --- |
| The facility was obtained to finance up to 85% of the cost of supplies and services
sourced in Germany relating to the design, manufacture, construction, installation
and testing of high performance backbone networks in Sumatra pursuant to the
Partnership Agreement dated November 30, 2001, with PT Pirelli Cables Indonesia
and PT Siemens Indonesia for the construction and provision of a high performance
backbone in Sumatra. The credit facility is unsecured. |
| The lender required a fee of 8.4% of the total facility. This fee was paid twice
during the agreement period, 15% of the fee was required to be paid in cash and 85%
was included in the loan balance. |
| As of December 31, 2005 and 2006, the outstanding loan was US$12.6 million
(equivalent to Rp123,665 million) and US$8.4 million (equivalent to Rp75,486
million), respectively. The loan is payable in ten semi-annual installments
beginning in April 2004. |
| The amounts drawn from the facility bear interest at a rate equal to the six-month
LIBOR plus 0.75% (i.e., 5.04% and 6.11% as of December 31, 2005 and 2006,
respectively). |

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24. BANK LOANS (continued)

d. Citibank N.A . (continued)

High Performance Backbone (HP Backbone) Loans (continued)

| b. |
| --- |
| The amounts drawn from the facility bear a fixed interest rate of 4.14%. The loans
are payable in ten semi-annual installments beginning in December 2003. Total
principal outstanding as of December 31, 2005 and 2006 was US$9.3 million
(equivalent to Rp91,257 million) and US$5.6 million (equivalent to Rp50,133
million), respectively. The credit facility is unsecured. |

During the period when the loans are outstanding, the Company is required to comply with all covenants or restrictions including maintaining financial ratios as follows:

1.	Debt service coverage ratio should exceed 1.5:1
2.	Debt to equity ratio should not exceed:

a.	3:1 for the period April 10, 2002 to January 1, 2003
b.	2.75:1 for the period January 2, 2003 to January 1, 2004
c.	2.5:1 for the period January 2, 2004 to January 1, 2005
d.	2:1 for the period January 2, 2005 to the full repayment date
of the loans

Debt to EBITDA ratio should not exceed:

a.	3.5:1 for the period April 10, 2002 to January 1, 2004
b.	3:1 for the period January 2, 2004 to the full repayment date
of the loans

In 2005, the Company has breached a covenant in the loan agreements which stipulate that the Company will not make any loans or grant any credit to or for the benefit of any person which in aggregate exceed 3% of shareholders equity. On May 12, 2006, the Company obtained a written waiver from Citibank International plc with regard to providing loans to certain subsidiaries which in aggregate exceed 3% of stockholders equity.

| 3. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with PT Ericsson Indonesia
(Note 51a.i), Telkomsel entered into the EKN-Backed Facility agreement (Facility)
with Citibank International plc (Original Lender and Agent) and Citibank N.A.,
Jakarta branch (Arranger) covering a total facility amount of US$70.5 million,
divided into several tranches. |
| The agreement was subsequently amended on December 17, 2004, to reduce the total
Facility to US$68.9 million. |

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24. BANK LOANS (continued)

d. Citibank N.A. (continued)

| 3. |
| --- |
| The interest rate per annum on the Facility is determined based on CIRR (Commercial
Interest Reference Rate) of 3.52% plus 0.5% per annum (i.e., 4.02% as of December 31,
2005 and 2006) and unsecured. Interest is payable semi-annually, starting on the
utilization date of the Facility (July 31, 2003). |
| In addition to the interest, in 2004, Telkomsel was also charged an insurance premium
for the insurance guarantee given by EKN in favor of Telkomsel for the loan
utilization amounting to US$1.5 million, 15% of which was paid in cash. The remaining
balance was settled through utilization of the Facility. |
| No amount were drawn down from the Facility in 2005 and 2006. As of December 31, 2005
and 2006, the outstanding balance was US$40.6 million (equivalent to Rp399,579
million) and US$25.2 million (equivalent to Rp226,993 million), respectively. |
| The schedule of the principal payments on this long-term loan as of December 31, 2006
is as follows: |

	Amount — US$	Rupiah
Year	(in millions)	Equivalent
2007	15.5	139,660
2008	9.7	87,333
	25.2	226,993

| 4. |
| --- |
| On March 21, 2006, Telkomsel signed a medium term loan agreement with Citibank, N.A.,
Jakarta Branch for a facility of Rp500,000 million. The loan is repayable to Citibank
in five (5) equal semi-annual installments beginning six (6) months after the end of
availability period (the earlier of March 21, 2007 and the date on which the facility
has been fully drawn). The loan bears a floating interest rate of three-month
Certificate of Bank Indonesia plus 1.75% (i.e., 11.25% as of December 31, 2006) and
unsecured. The principal outstanding as of December 31, 2006 amounted to Rp500,000
million. |

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24. BANK LOANS (continued)

d.
The following table summarizes the principal outstanding on the various long-term loans
from Citibank N.A. as of December 31, 2005 and 2006:


	Foreign			Foreign
	Currencies	Rupiah		Currencies	Rupiah
	(in millions)	Equivalent		(in millions)	Equivalent
Hermes Export Facility	Euro	36.7	427,718	22.0	260,994
HP Backbone loans	US$	21.9	214,922	14.0	125,619
EKN-Backed Facility	US$	40.6	399,579	25.2	226,993
Medium Term Loan	Rp				500,000
Total			1,042,219		1,113,606
Current maturities			(401,013	)	(584,821	)
Long-term portion			641,206		528,785

e.	Bank Negara Indonesia (BNI)
	On August 15, 2006, Telkomsel signed a medium-term facility loan agreement with BNI for
Rp300,000 million. This facility is payable for 5 quarterly installment commencing six
months after the end of the availability period (the earlier date of August 15, 2007 and
the date when the facility has been fully drawn down). The loan bears a floating
interest rate of three-month Certificate of Bank Indonesia plus 1.5% (i.e., 11.00% as of
December 31, 2006) and unsecured. The principal outstanding as of December 31, 2006
amounted to Rp300,000 million.
f.	Consortium of banks
	On June 21, 2002, the Company entered into a loan agreement with a consortium of banks
for a facility of Rp400,000 million to finance the Regional Division V Junction Project.
Bank Bukopin, acting as the facility agent, charged interest at the rate of 19% for the
first year from the signing date and at the rate of the highest average three-month
deposit rate of each creditors plus 4% for the remaining years. The draw-down period
expires 19 months from the signing of the loan agreement and the principal is payable in
14 quarterly installments starting from April 2004. The loan facility is secured by
project equipment, with a value of not less than Rp500,000 million.
	Subsequently, based on an addendum to the loan agreement dated April 4, 2003, the loan
facility was reduced to Rp150,000 million, the draw-down period was amended to expire 18
months from the signing of the addendum, the repayment schedule was amended to 14
quarterly installments starting from May 21, 2004 and ending on June 21, 2007, and the
value of the project equipment secured was reduced to Rp187,500 million.
	As of December 31, 2005 and 2006, interest rate charged on the loan was 12.94% and
12.69%, respectively, and principal outstanding was Rp74,890 million and Rp32,606
million, respectively.

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24. BANK LOANS (continued)

f.
During the period when the loan is outstanding, the Company is required to comply with all
covenants or restrictions including maintaining financial ratios as follows:

1.	Debt to equity ratio should not exceed 3:1
2.	EBITDA to interest expense should exceed 5:1

	As of December 31, 2006, the Company complied with the above mentioned ratios.
g.	Bank Niaga
	On December 28, 2004, Balebat entered into a loan agreement with Bank Niaga providing a
total facility of Rp7,200 million comprising Rp5,000 million to finance the construction
of plant (Investment Facility) with interest at 13.5% per annum and Rp2,200 million to
finance certain purchases of machinery (Specific Transaction Facility) with the interest
at 12% per annum. The interest rate was subsequently increased to 17% per annum on
December 1, 2005. The Investment Facility is repayable in 36 monthly installments
commencing from March 31, 2005. The Specific Transaction Facility is repayable in 60
monthly installments commencing from June 29, 2005. These facilities are secured by
Balebats property, plant and equipment with a value of Rp8,450 million. As of December
31, 2005 and 2006, principal outstanding under these facilities amounted to Rp5,696
million and Rp3,631 million, respectively.
	On December 22, 2005 the loan agreement was amended to include a short term credit
facility of Rp4,000 million with maturity date and interest rate of December 22, 2006 and
12.5% per annum, respectively. On June 13, 2006, the facility was combined with the
revolving credit facility of Rp800 million (Note 20d).
	On June 13, 2006, Balebat also received additional facility of Rp2,500 million which
consist of transaction facility of Rp2,000 million to finance the purchase of printing
machine and Rp500 million to finance the purchase of operational vehicle with interest
rate 16.5% per annum. These facilities will be due on October 30, 2011 and November 28,
2009, respectively. Both facilities secured by Balebats property located in West Java. As
of December 31, 2006, the outstanding loans of the facilities were Rp1,628 million and
Rp312 million, respectively.
	As discussed in Note 20d, on April 25, 2005, Balebat entered into a loan agreement with
Bank Niaga for a total facility of Rp2,400 million which includes an investment credit
facility of Rp1,600 million with maturity date of October 25, 2009. The investment credit
facility loan is payable in 48 unequal monthly installments beginning in November 2005
through October 2009. The investment credit facility bears interest at a rate equal to
market rate plus 2% (17% as of December 31, 2006). As of December 31, 2005 and 2006, the
principal outstanding amounted to Rp1,533 million and Rp1,134 million, respectively.

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24. BANK LOANS (continued)

h.	Bank Bukopin
	On May 11, 2005, Infomedia entered into loan agreements with Bank Bukopin for various
facilities totaling Rp5,300 million. The loans were obtained to finance the acquisition of
a property. The loan is payable in 60 monthly installments. A portion of the facilities
of Rp4,200 million will mature in June 2010 and the remainder of Rp1,100 million will
mature in December 2010. As of December 31, 2005 and 2006, interest rate charged on the
loan was 15.75%. The facilities are secured by certain Infomedias property. As of
December 31, 2005 and 2006, the principal outstanding amounted to Rp5,001 million and
Rp4,201 million, respectively.
i.	Bank Lippo
	On May 29, 2006, Infomedia entered into a loan agreement with Bank Lippo for a facility of
Rp18,500 million to finance its Call Center project with Telkomsel. The facility bears
interest at 15.5% per annum and is secured by Infomedias receivables on the Call Center
contract with Telkomsel amounted to Rp23,125 million until the due date of the loan within
36 months from the withdrawal date. As of December 31, 2006, the principal outstanding
amounted to Rp18,401 million.

25. DEFERRED CONSIDERATION FOR BUSINESS COMBINATIONS

These represent the Companys obligation to the Selling Stockholders of AWI in respect of the Companys acquisition of 100% of AWI, TM Communication (HK) Ltd. in respect of the Companys exercise of the Option Agreement to purchase the remaining 9.68% of Dayamitra shares, MGTI in respect of the Companys acquisition of KSO IV, and BSI in respect of the Companys acquisition of KSO VII.


AWI transaction (Note 5c)
PT Aria Infotek	394,294		257,870
The Asian Infrastructure Fund	93,879		61,398
MediaOne International I B.V.	262,863		171,914
Less discount on promissory notes	(57,298	)	(26,064	)
	693,738		465,118
Dayamitra transaction (Note 5a)
TM Communication (HK) Ltd.	147,791
Less discount on promissory notes	(2,519	)
	145,272
KSO IV transaction (Note 5d)
MGTI	3,868,433		2,874,128
Less discount	(717,090	)	(437,710	)
	3,151,343		2,436,418
KSO VII transaction (Note 5e)
BSI			2,226,431
Less discount			(536,790	)
			1,689,641
Total	3,990,353		4,591,177
Current maturity net of discount (Note 21a)	(862,394	)	(1,054,095	)
Long-term portion net of discount (Note 21b)	3,127,959		3,537,082

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26. MINORITY INTEREST


Minority interest in net
assets of subsidiaries:
Telkomsel	6,208,354	8,074,595
Infomedia	96,835	110,912
Metra		1,573
GSD	4	7
Total	6,305,193	8,187,087


Minority interest in net income (loss) of subsidiaries:
Telkomsel	1,915,543		3,026,029	3,913,743
Infomedia	37,088		37,940	36,784
Dayamitra	9,139
Indonusa	(1,959	)
Napsindo	(2,068	)
PII	(1,443	)
GSD	1		2	2
Metra				(2,428	)
Total	1,956,301		3,063,971	3,948,101

27. CAPITAL STOCK

	2005	Percentage	Total Paid-up
Description	Number of Shares	of Ownership	Capital
		%	Rp
Series A Dwiwarna share
Government of the Republic of Indonesia	1
Series B shares
Government of the Republic of Indonesia	10,320,470,711	51.19	2,580,118
JPMCB US Resident (Norbax Inc.)	1,992,333,765	9.88	498,083
The Bank of New York	1,291,002,696	6.41	322,751
Board of Commisioners (Note 1a):
Petrus Sartono	19,116		5
Board of Directors (Note 1a):
Garuda Sugardo	16,524		4
Guntur Siregar	19,980		5
John Welly	21,712		5
Abdul Haris	1,000
Public (individually less than 5%)	6,556,113,775	32.52	1,639,029
Total	20,159,999,280	100.00	5,040,000

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27. CAPITAL STOCK (continued)

	2006	Percentage	Total
Description	Number of Shares	of Ownership	Paid-up Capital
		%	Rp
Series A Dwiwarna share
Government of the Republic of Indonesia	1
Series B shares
Government of the Republic of Indonesia	10,320,470,711	51.19	2,580,118
JPMCB US Resident (Norbax Inc.)	1,756,681,581	8.71	439,170
The Bank of New York	1,487,512,256	7.38	371,878
Board of Commissioners (Note 1a):
Petrus Sartono	19,116		5
Board of Directors (Note 1a):
Garuda Sugardo	16,524		4
Guntur Siregar	19,980		5
John Welly	4
Abdul Haris	1,000
Public (individually less than 5%)	6,476,901,607	32.13	1,619,226
Total	20,041,622,780	99.41	5,010,406
Treasury Stock (Note 29)	118,376,500	0.59	29,594
Total	20,159,999,280	100.00	5,040,000

The Company only issued one Series A Dwiwarna Share which is held by the Government and cannot be transferred to any party, and has a veto in the General Meeting of the Stockholders with respect to election and removal of Commissioners and Directors and to amend the Companys article of association.

Series B shares give the same and equal rights to all the Series B shareholders.

28. ADDITIONAL PAID-IN CAPITAL

| Proceeds from sale of 933,333,000 shares in excess of par value
through initial public offering in 1995 | 1,446,666 | | 1,446,666 | |
| --- | --- | --- | --- | --- |
| Capitalization into 746,666,640 series B shares in 1999 | (373,333 | ) | (373,333 | ) |
| Total | 1,073,333 | | 1,073,333 | |

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| 29. |
| --- |
| Based on the resolution of the Extraordinary General Meeting of Stockholders on December 21,
2005, the Stockholders authorized the plan to repurchase the Companys issued and outstanding
Series B shares. The proposals to a stock repurchase programs, under the following terms and
conditions: (i) maximum stock repurchase would be 5% of the Companys issued Series B shares
with total cost not to exceed Rp5,250,000 million; (ii) the period determined for the
acquisition would not be longer than 18 months (December 21, 2005 to June 20, 2007), in
accordance with BAPEPAM Regulation No.XI.B.2. |
| As of December 31, 2006 the Company has repurchased 118,376,500 Series B shares of the
Companys issued and outstanding Series B shares representing 0.59% of the Companys issued
and outstanding Series B shares, for a total repurchased amount of Rp952,211 million (included
broker commision and custodian fee). |
| The movement of shares held in treasury arising from the programs for repurchase of shares was
the following: |

Number of share	Rp
Balance as of January 1, 2006
Number of shares acquired	118,376,500	952,211
Balance as of December 31, 2006	118,376,500	952,211

Historical unit cost of repurchase of treasury shares:

Weighted average	8,044
Minimum	6,633
Maximum	10,620

| | The acquisition unit cost has included the total cost for the shares repurchase programs i.e.
broker commission and custodian fee. Up to balance sheet date none of the shares acquired were
sold. |
| --- | --- |
| 30. | DIFFERENCE IN VALUE OF RESTRUCTURING TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL |
| | Cross-ownership transactions and acquisition of Pramindo |
| | On April 3, 2001, the Company signed a Conditional Sale and Purchase Agreement with Indosat,
for a series of transactions to consolidate their cross-ownership in certain companies. The
transactions under the agreement are as follows: |

i. The acquisition by the Company of Indosats 35% equity interest in Telkomsel for US$945.0 million (Telkomsel Transaction);

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30.
Cross-ownership transactions and acquisition of Pramindo (continued)

| ii. | The acquisition by Indosat of the Companys 22.5% equity interest in PT
Satelit Palapa Indonesia (Satelindo) for US$186.0 million (Satelindo
Transaction); |
| --- | --- |
| iii. | The acquisition by Indosat of the Companys 37.66% equity interest in PT
Aplikanusa Lintasarta (Lintasarta) and convertible bonds of Rp4,051 million issued
by Lintasarta for US$38.0 million (Lintasarta Transaction); and |
| iv. | The acquisition by Indosat of all of the Companys rights and novation of
all of the Companys obligations, under the KSO IV Agreement dated October 20, 1995,
between the Company and PT Mitra Global Telekomunikasi Indonesia (MGTI), together
with all of the Companys assets being used as KSO IV assets, for US$375.0 million
(KSO IV Transaction). |

Lintasartas convertible bonds were subsequently converted into shares, thereby reducing the Companys 37.66% equity interest to 37.21% prior to the consummation of the Lintasarta Transaction.

The Telkomsel and Lintasarta Transactions were consummated on May 16, 2001 based on Deed of Share Transfer No. 1/V/2001/triplo and No. 2/V/2001/duplo, respectively, of Notary Ny. Liliana Arif Gondoutomo, S.H.

The Satelindo Transaction was consummated on July 23, 2001 after DeTeAsia Holding GmbH and PT Bimagraha Telekomindo (the other Satelindo stockholders) waived their pre-emptive rights on 7.26% and 13.06% of Satelindos shares, respectively.

On February 1, 2002, the Company and Indosat announced the cancellation of the KSO IV Transaction. As a result, the Company settled this portion of the cross-ownership transaction in cash.

At the time of the transactions, the Government was the majority and controlling shareholder of both the Company and Indosat. Accordingly, the Telkomsel, Satelindo and Lintasarta Transactions have been accounted for as a restructuring of entities under common control. The Companys acquisition of a controlling interest in Telkomsel was accounted for in a manner similar to that of pooling of interests accounting (carryover basis). Accordingly, for reporting purposes, the financial statements of the Company and those of Telkomsel have been combined, as if they had been combined from the beginning of the earliest period presented. The effects of the transactions between the Company and Telkomsel before the combination were eliminated in preparing the combined financial statements. On the consummation dates of the transactions, the difference between the consideration paid or received and the historical amount of the net assets of the investee acquired or carrying amount of the investment sold was included as Difference in value of restructuring transactions between entities under common control in the stockholders equity section.

In connection with the acquisition of Pramindo on August 15, 2002, the portion representing Indosats 13% equity interest in Pramindo has been accounted for as a restructuring of entities under common control. On the acquisition date, the difference between the purchase consideration and the historical amount of the net assets acquired amounting to Rp296,038 million was included as Difference in value of restructuring transactions between entities under common control in the stockholders equity section.

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| 30. |
| --- |
| Cross-ownership transactions and acquisition of Pramindo (continued) |
| The difference in the value of the restructuring transactions between the entities under
common control arising from the cross-ownership transactions and acquisition of Pramindo can
be summarized as follows: |


Consideration		Amount of
Paid/		Net Assets/	Deferred	Change
(Received)		Investment	Income Tax	in Equity		Total		Tax		Net
Cross-ownership transactions
with Indosat in 2001:
Acquisition of 35% equity
interest in Telkomsel	10,782,450		1,466,658	337,324			8,978,468				8,978,468
Sale of 22.5% equity
interest in Satelindo	(2,122,260	)			(290,442	)	(2,412,702	)	(627,678	)	(1,785,024	)
Sale of 37.66% equity
interest in Lintasarta	(437,631	)	116,834				(320,797	)	(119,586	)	(201,211	)
Total	8,222,559		1,583,492	337,324	(290,442	)	6,244,969		(747,264	)	6,992,233
Acquisition of 13% equity interest
in Pramindo in 2002
from Indosat (Note 5b)	434,025		137,987				296,038				296,038
Total	8,656,584		1,721,479	337,324	(290,442	)	6,541,007		(747,264	)	7,288,271

On December 20, 2002, the Government sold its 41.94% ownership interest in Indosat to STTC and waived its special voting rights with respect to the Series A Dwiwarna share. As a result, as of December 20, 2002, the Government ceased to be the majority and controlling shareholder of Indosat and consequently, the Company no longer considered Indosat as a common control entity from that date. As discussed in Note 4, in connection with the adoption of PSAK 38R and pursuant to a ruling issued by BAPEPAM regarding the initial application of PSAK 38R by public companies, the Company has reclassified the difference in the value of the restructuring transactions between the entities under common control account resulting from the cross-ownership transactions and acquisition of Pramindo as a charge to retained earnings as of January 1, 2005.

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| 30. |
| --- |
| Compensation for early termination of exclusive rights |
| As discussed in Note 1a, on July 31, 2002, the Government decided to terminate the Companys
exclusive rights to provide local and domestic long-distance fixed-line telecommunications
services taking effect since August 1, 2002. |
| On March 30, 2004, the Minister of Communications issued Announcement No. PM.2 year 2004
regarding the Implementation of Restructuring in the Telecommunications Sector which, among
others, stipulates that the Government shall pay compensation for early termination of
exclusive rights to the Company amounting to Rp478,000 million, net of tax. |
| On December 15, 2005, the Company signed an agreement on Implementation of Compensation for
Termination of Exclusive Rights with the State Minister of Communication and Information
Directorate General of Post and Telecommunications, which was amended on October 18, 2006.
Pursuant to this agreement, the Government agreed to pay Rp478,000 million to the Company over
a five-year period where Rp90,000 million shall be paid from the 2005 State budget, Rp90,000
million from the 2006 State budget and the remaining Rp298,000 million shall be paid gradually
or in one lump-sum payment based on the States financial ability. In addition, the Company is
required by the Government to use the funds received from this compensation for the
development of telecommunications infrastructure. |
| As of December 31, 2006, the Company has received Rp180,000 million in relation to the
compensation for the early termination of exclusivity right, being Rp90,000 million paid on
December 30, 2005 and Rp90,000 million on December 28, 2006. The Company recorded these
amounts in Difference in value of restructuring transactions between entities under common
control in the stockholders equity section. These amounts are recorded as a component of
stockholders equity because the Government is the majority and controlling shareholder of the
Company. The Company will record the remaining amount of Rp298,000 million when it is
received. |
| As of December 31, 2006, the development of the related infrastructure amounted to Rp90,702
million. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

TELEPHONE REVENUES


Fixed lines
Local and domestic long-distance usage	7,439,310	7,223,137	7,130,861
Monthly subscription charges	2,934,899	3,289,750	3,491,497
Installation charges	201,313	197,266	170,205
Phone cards	15,561	10,943	4,036
Others	53,938	60,156	182,434
Total	10,645,021	10,781,252	10,979,033
Cellular
Air time charges	9,825,738	13,666,286	19,257,290
Monthly subscription charges	448,472	383,537	297,450
Connection fee charges	55,797	64,110	109,251
Features	91,291	457,025	958,656
Total	10,421,298	14,570,958	20,622,647
Total Telephone Revenues	21,066,319	25,352,210	31,601,680

INTERCONNECTION REVENUES NET

Cellular	5,351,613	6,685,138	7,442,340
International	641,210	854,766	1,001,304
Others	195,158	202,180	237,817
Total	6,187,981	7,742,084	8,681,461

Refer to Note 46 for details of related party transactions.

REVENUE UNDER JOINT OPERATION SCHEMES

Minimum Telkom Revenues	295,955	268,629	207,516
Share in Distributable KSO Revenues	349,528	318,556	274,587
Amortization of unearned initial investor payments
under Joint Operation Schemes	11,131	1,462	7,311
Total	656,614	588,647	489,414

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33.	REVENUE UNDER JOINT OPERATION SCHEMES (continued)
	KSO revenues were shares of the Companys revenues under joint operation agreement with the
KSO investors. On October 19, 2006, the Company has amended the KSO VII agreement and as of
that date the Company has obtained the operational control over KSO VII (Note 5e and 48). As
of December 31, 2006 the Company has obtained full control over all of the KSO operations by
acquisition of its KSO investors or the businesses.
34.	DATA AND INTERNET REVENUES

SMS	3,562,726	5,309,244	6,730,463
Internet	554,948	711,375	907,467
Data communication	360,642	610,367	1,122,285
VoIP	318,854	292,750	278,057
e-Business	11,572	10,588	26,915
Total	4,808,742	6,934,324	9,065,187

NETWORK REVENUES

Leased lines	443,408	347,105	424,633
Satellite transponder lease	210,901	239,531	294,105
Total	654,309	586,636	718,738

Refer to Note 46 for details of related party transactions.

REVENUE-SHARING ARRANGEMENTS REVENUES

Revenue-Sharing Arrangements revenues	198,543	165,601	263,516
Amortization of unearned income (Note 13)	82,033	136,681	151,961
Total	280,576	302,282	415,477

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OPERATING EXPENSES PERSONNEL

Salaries and related benefits	1,796,914	2,165,895	2,400,631
Vacation pay, incentives and other benefits	1,156,069	1,615,640	2,209,056
Early retirements program (Note 18)	243,466	486,374	1,461,150
Employee income tax	523,787	856,451	889,083
Net periodic post-retirement
health care benefit cost (Note 45)	416,276	488,586	604,748
Net periodic pension cost (Note 43)	572,419	532,331	438,383
Long service awards (Note 44)	36,861	201,878	215,840
Housing	103,459	113,673	168,416
Medical	12,190	18,019	25,117
Other employee benefits (Note 43)	11,510	5,954	14,341
Others	37,014	78,246	87,000
Total	4,909,965	6,563,047	8,513,765

OPERATING EXPENSES OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICES

Operations and maintenance	2,398,159	3,075,092	4,209,145
Concession fees and Universal
Service Obligation (USO) charges	314,741	709,190	881,757
Radio frequency usage charges	492,568	548,186	722,600
Cost of phone, SIM and RUIM cards	366,661	582,351	579,334
Electricity, gas and water	385,662	372,526	417,349
Vehicles and supporting facilities	181,737	217,217	246,184
Leased lines	132,829	124,253	236,394
Insurance	151,297	136,378	145,075
Call center	59,634	104,989	14,679
Travelling	42,213	33,455	39,106
Others	4,086	12,704	4,105
Total	4,529,587	5,916,341	7,495,728

Refer to Note 46 for details of related party transactions.

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OPERATING EXPENSES GENERAL AND ADMINISTRATIVE

| Amortization of goodwill and other intangible assets
(Note 15) | 872,330 | 918,153 | 944,403 |
| --- | --- | --- | --- |
| Collection expenses | 358,957 | 379,056 | 542,466 |
| Provision for doubtful accounts and inventory
obsolescence | 357,695 | 488,973 | 458,252 |
| General and social contribution | 111,838 | 204,326 | 301,826 |
| Travelling | 192,567 | 171,657 | 229,670 |
| Training, education and recruitment | 228,524 | 177,853 | 224,321 |
| Professional fees | 137,355 | 131,047 | 221,043 |
| Security and screening | 143,892 | 164,416 | 197,416 |
| Meetings | 58,333 | 40,311 | 63,953 |
| Stationery and printing | 80,972 | 50,190 | 51,864 |
| Research and development | 13,225 | 8,396 | 8,653 |
| Others | 44,159 | 29,573 | 27,560 |
| Total | 2,599,847 | 2,763,951 | 3,271,427 |

TAXATION

a. Telkomsel recognized a claim for tax refund amounting to Rp337,855 million as a result of the revision to the 2004 and 2005 tax returns and Rp21,727 million as a result of its objection to the 2002 tax assessment (Note 40f).


b. Prepaid taxes
Subsidiaries
Corporate income tax	13,352
Value added tax	5,561	896
Income tax Article 23 - Services Delivery		1,494
	18,913	2,390

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TAXATION (continued)


c. Taxes payable
The Company
Income taxes
Article 21 - Individual income tax	64,793	80,626
Article 22 - Witholding tax on goods delivery and import	5,055	3,137
Article 23 - Witholding tax on services delivery	46,132	36,258
Article 25 - Installment of corporate income tax	117,281	128,291
Article 26 - Witholding tax on non-resident income tax	1,143	73,872
Article 29 - Underpayment of corporate income tax	376,140	602,159
Value added tax	256,523	275,657
	867,067	1,200,000
Subsidiaries
Income taxes
Article 4 - Final tax	3,318	7,829
Article 21 - Individual income tax	25,059	55,340
Article 22 - Witholding tax on goods delivery and import		639
Article 23 - Witholding tax on services delivery	55,928	75,577
Article 25 - Installment of corporate income tax	203,254	272,803
Article 26 - Witholding tax on non-resident income tax	72,252	34,115
Article 29 - Underpayment of corporate income tax	1,207,247	808,838
Value added tax	35,640	113,861
	1,602,698	1,369,002
	2,469,765	2,569,002

d. The components of income tax expense (benefit) are as follows:


Current
The Company	1,922,238		2,034,248		2,536,459
Subsidiaries	2,344,873		3,685,396		4,560,743
	4,267,111		5,719,644		7,097,202
Deferred
The Company	(330,630	)	(694,843	)	(713,200	)
Subsidiaries	242,045		159,086		655,925
	(88,585	)	(535,757	)	(57,275	)
	4,178,526		5,183,887		7,039,927

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TAXATION (continued)

e.
The reconciliation between the consolidated income before tax and taxable income
attributable to the Company and the consolidated income tax expense are as follows:

Consolidated income before tax	12,749,395		16,241,424		21,993,605
Add back consolidation eliminations	3,936,524		5,737,400		7,529,604
Consolidated income before tax and eliminations	16,685,919		21,978,824		29,523,209
Less: income before tax of the subsidiaries	(8,485,296	)	(12,645,854	)	(16,694,373	)
Income before tax attributable to the Company	8,200,623		9,332,970		12,828,836
Less: income subject to final tax	(206,601	)	(285,075	)	(690,760	)
	7,994,022		9,047,895		12,138,076
Tax calculated at progressive rates	2,398,189		2,714,351		3,641,405
Non-taxable income	(1,181,983	)	(1,724,483	)	(2,256,896	)
Non-deductible expenses	322,884		315,041		321,880
Deferred tax assets originating from previously
unrecognized temporary differences, net	(14,940	)	(6,900	)
Deferred tax assets that cannot be utilized, net	24,045				(3,071	)
Corporate income tax expense	1,548,195		1,298,009		1,703,318
Final income tax expense	43,413		41,396		119,940
Total income tax expense of the Company	1,591,608		1,339,405		1,823,258
Income tax expense of the Subsidiaries	2,586,918		3,844,482		5,216,669
Total consolidated income tax expense	4,178,526		5,183,887		7,039,927

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TAXATION (continued)

e.
The reconciliation between income before tax attributable to the Company and estimated
taxable income for the years ended December 31, 2004, 2005 and 2006 is as follows:

Income before tax attributable to the Company	8,200,623		9,332,970		12,828,836
Less: income subject to final tax	(206,601	)	(285,075	)	(690,760	)
	7,994,022		9,047,895		12,138,076
Temporary differences:
Depreciation of property, plant and equipment	415,805		880,578		746,190
Gain on sale of property, plant and equipment	(12,874	)	(2,143	)	(41,269	)
Allowance for doubtful accounts	491,577		308,193		265,385
Trade receivables written-off	(91,865	)	(336,715	)	(118,668	)
Allowance for inventory obsolescence	11,385		11,228		5,501
Inventory written-off			(12,183	)	(1,928	)
Accrued early retirement benefits	(132,810	)			1,528,429
Accrued employee benefits	(139,064	)	67,792		27,105
Net periodic pension cost	(264,796	)	(164,008	)	(275,486	)
Long service awards	(46,908	)	69,264		94,094
Amortization of intangible assets	851,060		896,883		923,867
Amortization of landrights	(3,419	)	(3,441	)	(3,988	)
Provision for impairment of property, plant and
equipment			616,768
Depreciation of property, plant and equipment
under revenue-sharing arrangements	82,415		96,114		112,762
Interest income/receivable	45,835
Amortization of unearned income on revenue-sharing arrangements	(82,033	)	(135,662	)	(153,465	)
Payments of deferred consideration for business
combinations	(233,337	)	(405,302	)	(484,276	)
Consultant fees for acquisition of business	(27,797	)
Foreign exchange loss/(gain) on deferred
consideration for business combinations	342,073		190,206		(273,555	)
Foreign exchange losses capitalized
to property under construction	(74,283	)
Capital leases			21,359		20,000
Loss on purchase commitments			79,359
Other provisions			114,854		(3,600	)
Total temporary differences	1,130,964		2,293,144		2,367,098

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TAXATION (continued)

e. (continued)


Permanent differences:
Net periodic post-retirement health care benefit cost	408,498		483,045		596,108
Amortization of goodwill	21,270		21,270		8,858
Amortization of discount on promissory notes	109,786		74,632		46,183
Tax penalties	14,645		59,850		(2,925	)
Equity in net income of associates and subsidiaries	(3,939,944	)	(5,748,277	)	(7,522,986	)
Gain on sales of investment					(10,397	)
Others	523,568		411,339		435,104
Total permanent differences	(2,862,177	)	(4,698,141	)	(6,450,055	)
Taxable income	6,262,809		6,642,898		8,055,119
Corporate income tax expense	1,878,825		1,992,852		2,416,519
Final income tax expense	43,413		41,396		119,940
Total current income tax expense of the Company	1,922,238		2,034,248		2,536,459
Current income tax expense of the Subsidiaries	2,344,873		3,685,396		4,560,743
Total current income tax expense	4,267,111		5,719,644		7,097,202

Calculation of corporate income tax liability above was in accordance with annual tax return submitted by the Company to the Tax Office.

| f. |
| --- |
| In 2006, the Company received a tax assessment letter (SKPKB) from the Tax Office
confirming an underpayment of its corporate income tax for fiscal year 2004 amounting to
Rp4,363 million. The underpayment was paid in August 2006. |
| During 2006, Telkomsel was assessed for underpayments of withholding taxes and value
added tax (self assessed) including penalty covering the fiscal year 2002 totaling Rp129
billion and overpayment of corporate income tax of Rp5 billion. The net underpayment of
Rp124 billion was settled through the use of the payment of income tax in 2003 of Rp24
billion and a cash payment of Rp100 billion. Of the Rp100 billion cash payment made,
Telkomsel has filed an objection for Rp99 billion. Of the net underpayment of Rp105
billion, Rp83 billion was charged to expense in 2006 with the remaining amount of Rp22
billion recorded as part of its claims for tax refund (Note 40a). |
| In 2006, Telkomsel filed revisions of its tax returns for the fiscal years 2004 and 2005
due to a recalculation of the depreciation of property, plant and equipment for tax
purposes. As a result of the recalculation, Telkomsel recognized claims for overpayments
with a corresponding addition to the deferred tax liability of property, plant and
equipment amounting to Rp338 billion (Note 40a).
Accordingly, Telkomsel is being audited by the Tax Office. |

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TAXATION (continued)

g.
The details of the Companys and subsidiaries deferred tax assets and liabilities are as
follows:


		credited
December 31,		to statements		December 31,
2004		of income		2005
The Company
Deferred tax assets:
Allowance for doubtful
accounts	207,679		(2,283	)	205,396
Allowance for inventory
obsolescence	15,494		(1,842	)	13,652
Long-term investments	4,685		1,981		6,666
Accrued employee benefits	42,665		20,338		63,003
Accrued long service awards	128,011		20,780		148,791
Net periodic pension cost	433,439		(49,202	)	384,237
Capital leases			6,408		6,408
Deferred
consideration for business combinations	1,009,932		(64,529	)	945,403
Accrued expenses			58,265		58,265
Total deferred tax assets	1,841,905		(10,084	)	1,831,821
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(2,198,654	)	432,437		(1,766,217	)
Landrights	(1,571	)	(1,033	)	(2,604	)
Revenue-sharing arrangements	(41,637	)	4,461		(37,176	)
Intangible assets	(1,614,386	)	269,062		(1,345,324	)
Total deferred tax liabilities	(3,856,248	)	704,927		(3,151,321	)
Deferred tax liabilities of the
Company, net	(2,014,343	)	694,843		(1,319,500	)
Deferred tax liabilities of the
subsidiaries, net	(913,224	)	(159,086	)	(1,072,310	)
Total deferred tax liabilities, net	(2,927,567	)	535,757		(2,391,810	)

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TAXATION (continued)

g. Deferred tax assets and liabilities (continued)


		Credited
December 31,		to Statements		Business		Prior Year		December 31,
2005		of Income		Acquisition		Overpayment		2006
The Company
Deferred tax assets:
Allowance for doubtful
accounts	205,396		57,925						263,321
Allowance for inventory
obsolescence	13,652		447						14,099
Long-term investments	6,666		(6,666	)
Accrued for employee benefits	63,003		466,659						529,662
Accrued long service awards	148,791		28,228						177,019
Net periodic pension cost	384,237		(81,977	)					302,260
Capital Leases	6,408		6,000						12,408
Deferred consideration for
business combinations	945,403		(227,349	)	531,278				1,249,332
Accrued expenses	58,265		(1,080	)					57,185
Total deferred tax assets	1,831,821		242,187		531,278				2,605,286
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(1,766,217	)	205,534		(386,666	)			(1,947,349	)
Landrights	(2,604	)	(1,196	)					(3,800	)
Revenue-sharing arrangements	(37,176	)	(10,485	)					(47,661	)
Intangible assets	(1,345,324	)	277,160		(137,619	)			(1,205,783	)
Total deferred tax liabilities	(3,151,321	)	471,013		(524,285	)			(3,204,593	)
Deferred tax liabilities of the
Company, net	(1,319,500	)	713,200		6,993				(599,307	)
Deferred tax liabilities of the
subsidiaries, net	(1,072,310	)	(655,925	)			(337,855	)	(2,066,090	)
Total deferred tax liabilities, net	(2,391,810	)	57,275		6,993		(337,855	)	(2,665,397	)

The net deferred tax liabilities of subsidiaries as of December 31, 2005 included deferred tax assets of Rp123,309 million arising from tax losses carry forwards from PT Aria West Indonesia. As of December 31, 2006, tax losses carry forwards balance had been utilised for fiscal year 2006.

Realization of the deferred tax assets is dependent upon profitable operations. Although realization is not assured, the Company and its subsidiaries believe that it is probable that these deferred tax assets will be realized through the reduction of future taxable income. The amount of deferred tax assets is considered realizable, however, could be reduced if actual future taxable income is lower than estimated.

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TAXATION (continued)

| h. |
| --- |
| Under the taxation laws of Indonesia, the Company and each subsidiary submit tax returns
on the basis of self-assessment. The tax authorities may assess or amend taxes within ten
years from the date the tax became payable. |
| The Company has been audited by the Tax Office up to the fiscal year of 2004. |

41.	BASIC EARNINGS PER SHARE
	Basic earnings per share is computed by dividing net income by the weighted average number of
shares outstanding during the year, totaling 20,159,999,280, 20,159,999,280 and 20,114,511,886
in 2004, 2005 and 2006, respectively. See also Notes 1b and 2t.
	The Company does not have potentially dilutive ordinary shares.
42.	CASH DIVIDENDS AND GENERAL RESERVE
	Pursuant to the Annual General Meeting of Stockholders as stated in notarial deed No. 25 dated
July 30, 2004 of A. Partomuan Pohan, S.H., LLM., the stockholders approved the distribution of
cash dividends for the year 2003 amounting to Rp3,043,614 million or Rp301.95 per share
(pre-stock split) and the appropriation of Rp121,745 million for general reserve.
	On December 7, 2004, the Company decided to distribute the 2004 interim cash dividends of
Rp143,377 million or Rp7.11 per share to the Companys stockholders.
	Pursuant to the Annual General Meeting of Stockholders as stated in notarial deed No. 36 dated
June 24, 2005 of A. Partomuan Pohan, S.H., LLM., the stockholders approved the distribution of
cash dividends for the year 2004 amounting to Rp3,064,604 million or Rp152.01 per share (of
which Rp143,377 million or Rp7.11 per share was distributed as interim cash dividends in
December 2004) and the appropriation of Rp122,584 million for general reserve.
	Pursuant to the Annual General Meeting of Stockholders as stated in notarial deed No. 68 dated
June 30, 2006 of A. Partomuan Pohan, S.H., LLM., the stockholders approved the distribution of
cash dividends for the year 2005 amounting to Rp4,400,090 million or minimum of Rp218.86 per
share.
	On December 5, 2006, the Company decided to distribute the 2006 interim cash dividends of
Rp971,017 million or Rp48.41 per share to the Companys stockholders.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PENSION PLANS

| a. |
| --- |
| The Company sponsors a defined benefit pension plan and a defined contribution pension
plan. |
| The defined benefit pension plan is provided for employees hired with permanent status
prior to July 1, 2002. The pension benefits are paid based on the participating employees
latest basic salary at retirement and the number of years of their service. The plan is
managed by Telkom Pension Fund (Dana Pensiun Telkom). The participating employees
contribute 18% (before March 2003: 8.4%) of their basic salaries to the plan. The
Companys contributions to the pension fund for the years ended December 31, 2004, 2005
and 2006 amounted to Rp845,743 million, Rp698,526 million and Rp693,497 million,
respectively. |
| The defined contribution pension plan is provided for employees hired with permanent
status on or after July 1, 2002. The plan is managed by financial institutions pension
fund (DPLK). The Companys contribution is determined based on a certain percentage of
the participants salaries and amounted to Rp399 million, Rp971 million and Rp1,858
million for the years December 31, 2004, 2005 and 2006, respectively. |
| The following table presents the change in projected benefit obligation, the change in
plan assets, funded status of the plan and the net amount recognized in the Companys
balance sheets for the years ended December 31, 2004, 2005 and 2006 for its defined
benefit pension plan: |


Change in projected benefit
obligation
Projected benefit obligation
at beginning of year	6,852,923		7,315,182		7,140,100
Service cost	137,264		138,117		187,960
Interest cost	740,494		789,830		768,586
Plan participants
contributions	42,838		41,371		43,918
Actuarial gain (loss)	(216,025	)	(874,573	)	286,733
Expected benefits paid	(242,312	)	(269,827	)	(305,916	)
Projected benefit obligation
at end of the year	7,315,182		7,140,100		8,121,381
Change in plan assets
Fair value of plan assets at
beginning of year	3,671,309		4,884,523		5,429,954
Expected return on plan
assets	436,672		533,333		677,602
Employer contribution	845,743		698,526		693,497
Plan participants
contributions	42,838		41,371		43,918
Actuarial gain (loss)	130,273		(457,972	)	671,693
Expected benefits paid	(242,312	)	(269,827	)	(305,916	)
Fair value of plan assets at
end of the year	4,884,523		5,429,954		7,210,748
Funded status	(2,430,659	)	(1,710,146	)	(910,633	)
Unrecognized prior service
cost	1,329,046		1,190,024		1,051,002
Unrecognized net actuarial
gain	(346,298	)	(762,899	)	(1,143,369	)
Accrued pension benefit cost	(1,447,911	)	(1,283,021	)	(1,003,000	)

The actual return on plan assets was Rp795,958 million, Rp608,420 million and Rp1,300,632 million for the years ended 2004, 2005 and 2006, respectively.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

PENSION PLANS (continued)

a.
The movement of the accrued pension benefit cost during the years ended December 31, 2004,
2005 and 2006 is as follows:

Accrued pension benefit cost at beginning of the year	1,713,546		1,447,911		1,283,021
Net periodic pension cost less amounts charged to
KSO Units	563,739		514,976		397,317
Amounts charged to KSO Units under contractual
agreement	16,369		18,660		16,159
Employer contributions	(845,743	)	(698,526	)	(693,497	)
Accrued pension benefit cost at end of the year	1,447,911		1,283,021		1,003,000

| As of December 31, 2005 and 2006, plan assets consisted mainly of Indonesian Government
bonds and corporate bonds. As of December 31, 2006 plan assets included bonds and Series B
shares issued by the Company with fair values of Rp217,531 million and Rp238,495 million,
respectively (December 31, 2005: Rp223,736 million and Rp124,189 million, respectively). |
| --- |
| The actuarial valuation for the defined benefit pension plan was performed based on
measurement date of December 31, 2004, 2005 and 2006, with the reports prepared on March
15, 2005, February 27, 2006, and April 24, 2007, respectively, by PT Watson Wyatt
Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The
principal actuarial assumptions used by the independent actuary as of December 31, 2004,
2005 and 2006 are as follows. |

Discount rate	11 %	11 %	10.5 %
Expected long-term return on plan assets	10.5 %	10.5 %	12 %
Rate of compensation increase	8 %	8.8 %	8 %

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PENSION PLANS (continued)

a.
The components of net periodic pension cost are as follows:

Service Cost	137,264		138,117		187,960
Interest Cost	740,494		789,830		768,586
Expected return on plan assets	(436,672	)	(533,333	)	(677,602	)
Amortization of prior service cost	139,022		139,022		139,022
Recognized actuarial loss (gain)					(4,490	)
Net periodic pension cost	580,108		533,636		413,476
Amount charged to KSO Units under
contractual agreement	(16,369	)	(18,660	)	(16,159	)
Total net periodic pension cost less amounts
charged to KSO Units (Note 37)	563,739		514,976		397,317

| b. |
| --- |
| Telkomsel provides a defined benefit pension plan for its employees. Under this plan,
employees are entitled to pension benefits based on their latest basic salary or take-home
pay and the number of years of their service. PT Asuransi Jiwasraya (Jiwasraya), a
state-owned life insurance company, manages the plan. Until 2004, the employees
contributed 5% of their monthly salaries to the plan and Telkomsel contributed any
remaining amount required to fund the plan. Starting 2005, the entire contributions are
fully made by Telkomsel. |
| Telkomsels contributions to Jiwasraya amounted to Rp Nil, Rp14,928 million and Rp29,731
million for the years ended 2004, 2005 and 2006, respectively. |
| The following table reconciles the unfunded status of the plan with the amounts included
in the consolidated balance sheets as of December 31, 2004, 2005 and 2006: |

Projected benefit obligation	(43,547	)	(147,103	)	(230,172	)
Fair value of plan assets	11,182		20,971		29,904
Unfunded status	(32,365	)	(126,132	)	(200,268	)
Unrecognized items in the balance
sheet:
Unrecognized prior service cost	1,328		1,213		1,098
Unrecognized net actuarial loss	20,707		103,391		166,676
Accrued pension benefit cost	(10,330	)	(21,528	)	(32,494	)

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PENSION PLANS (continued)

b.
The components of the net periodic pension cost are as follows:

Service cost	4,155		10,072		21,321
Interest cost	3,889		6,650		16,169
Expected return on plan assets	(824	)	(832	)	(2,124	)
Amortization of past service cost	115		115		115
Recognized actuarial loss	1,158		1,320		5,216
Net periodic pension cost (Note 37)	8,493		17,325		40,697

The net periodic pension cost for the pension plan was calculated based on measurement date of December 31, 2004, 2005 and 2006, with the reports prepared on January 17, 2005, January 13, 2006, and February 16, 2007 respectively, by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The principal actuarial assumptions used by the independent actuary based on measurement date of December 31, 2004, 2005 and 2006 for each of the years are as follows:

Discount rate	11 %	11 %	10.5 %
Expected long-term return on plan assets	7.5 %	7.5 %	7.5 %
Rate of compensation increase	9 %	8 %	8 %

| c. |
| --- |
| Infomedia provides a defined benefit pension plan for its employees. The reconciliation of
the funded status of the plan with the net amount recognized in the balance sheets as of
December 31, 2004, 2005 and 2006 are as follows: |

Projected benefit obligation	(4,051	(5,225	(6,188
Fair value of plan assets	5,413	5,865	6,291
Funded status	1,362	640	103
Prepaid pension benefit cost	1,362	640	103

The net periodic pension cost of Infomedia amounted to Rp187 million, Rp30 million and Rp369 million for the years ended December 31, 2004, 2005 and 2006, respectively (Note 37).

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PENSION PLANS (continued)

| d. |
| --- |
| Under Law No. 13/2003 concerning labor regulation, the Company and its subsidiaries are
required to provide a minimum pension benefit, if not already covered by the sponsored
pension plans, to their employees upon retiring at the age of 55. The total related
obligation recognized as of December 31, 2005 and 2006 amounted to Rp26,115 million and
Rp35,128 million, respectively. The total related employee benefit cost charged to expense
amounted to Rp11,510 million, Rp5,954 million and Rp14,341 million for the years ended
December 31, 2004, 2005 and 2006, respectively (Note 37). |

LONG SERVICE AWARDS

| a. |
| --- |
| The Company provides certain cash awards for its employees who meet certain length of
service requirement. The benefits are either paid at the time the employee reaches certain
anniversary dates during employment, or proportionately upon retirement or termination. |
| The actuarial valuation for the long service awards was prepared based on the measurement
date of December 31 2004, 2005, and 2006 with the reports prepared on March 15, 2005,
February 27, 2006 and April 24, 2007 respectively, by PT Watson Wyatt Purbajaga, an
independent actuary in association with Watson Wyatt Worldwide. The principal actuarial
assumptions used by the independent actuary as of December 31, 2004, 2005 and 2006 are as
follows: |

Discount rate	11 %	11 %	10.5 %
Rate of compensation increase	8 %	8 %	8 %

The movement of the accrued long service awards during the years ended December 31, 2004, 2005 and 2006 is as follows:

Accrued long service awards at beginning of year	473,614		426,705		495,969
Net periodic pension cost less amounts charged to
KSO Units (Note 37)	31,148		192,450		150,741
Amounts to charged to KSO Units under contractual
agreement					10,321
Benefits paid	(78,057	)	(123,186	)	(66,968	)
Accrued long service awards at end of year	426,705		495,969		590,063
Benefits to be paid for early retirement
program (Note 18)					(67,279	)
Accrued long service awards non current	426,705		495,969		522,784

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LONG SERVICE AWARDS (continued)

| b. |
| --- |
| Telkomsel provides certain cash awards for its employees based on the employees length of
service. The benefits are either paid at the time the employee reaches certain anniversary
dates during employment, or proportionately upon retirement or at the time of termination. |
| The obligation with respect to these awards was determined based on the actuarial valuation
using the Projected Unit Credit Method, and amounted to Rp28,555 million and Rp73,541 million
as of December 31, 2005 and 2006, respectively. The related benefit cost charged to expense
amounted to Rp5,713 million, Rp9,428 million and Rp65,099 million for the years ended December
31, 2004, 2005 and 2006, respectively (Note 37). |

| 45. |
| --- |
| The Company provides a post-retirement health care plan for all of its employees hired before
November 1, 1995 who have worked for the Company for 20 years or more when they retire, and to
their eligible dependents. The requirement of working for over 20 or more years does not apply
to employees who retired prior to June 3, 1995. However, the employees hired by the Company
starting from November 1, 1995 will no longer be entitled to this plan. The plan is managed
by Yayasan Kesehatan Pegawai Telkom (YKPT). |
| The following table presents the change in projected benefit obligation, the change in plan
assets, funded status of the plan and the net amount recognized in the Companys balance
sheets as of December 31, 2004, 2005 and 2006: |


Change in projected benefit obligation
Projected benefit obligation at beginning of the
year	3,787,389		4,681,005		5,574,489
Service cost	76,163		87,636		107,513
Interest cost	411,110		507,994		605,573
Actuarial loss	506,397		423,606		836,334
Expected benefits paid	(100,054	)	(125,752	)	(138,566	)
Projected benefit obligation at end of the year	4,681,005		5,574,489		6,985,343
Change in plan assets
Fair value of plan assets at beginning of the year	505,340		1,138,768		1,493,897
Expected return on plan assets	61,084		103,498		145,264
Employer contributions	724,530		435,899		714,854
Actuarial gain (loss)	(52,132	)	(58,516	)	37,812
Expected benefits paid	(100,054	)	(125,752	)	(138,566	)
Fair value of plan assets at end of the year	1,138,768		1,493,897		2,253,261
Funded status	(3,542,237	)	(4,080,592	)	(4,732,082	)
Unrecognized net actuarial loss	558,530		1,032,571		1,786,354
Accrued post-retirement health care benefit cost	(2,983,707	)	(3,048,021	)	(2,945,728	)

The actual return on plan assets was Rp30,394 million, Rp52,810 million and Rp144,659 million for the years ended December 31, 2004, 2005 and 2006.

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45.
The components of net periodic post-retirement health care benefit cost are as follows:

Service cost	76,163		87,636		107,513
Interest cost	411,110		507,994		605,573
Expected return on plan assets	(61,084	)	(103,498	)	(145,264	)
Recognized actuarial loss			8,081		44,738
Net periodic post-retirement benefit cost	426,189		500,213		612,560
Amounts charged to KSO Units under contractual
agreement	(9,913	)	(11,627	)	(7,812	)
Total net periodic post-retirement health care
benefits cost less amounts charged to
KSO Units (Note 37)	416,276		488,586		604,748

| As of December 31, 2005, plan assets included bonds and Medium-term Notes issued by the
Company with a total fair value of Rp232,394 million. As of December 31, 2006, plan assets
included stocks and Medium-term Notes issued by the Company with a total fair value of
Rp191,248 million. |
| --- |
| The movement of the accrued post-retirement health care benefit cost during the years ended
December 31, 2004, 2005 and 2006 is as follows: |

| Accrued post-retirement health care benefit cost at
beginning of year | 3,282,048 | | 2,983,707 | | 3,048,021 | |
| --- | --- | --- | --- | --- | --- | --- |
| Net periodic post-retirement health care benefit cost
less amounts charged to KSO Units (Note 37) | 416,276 | | 488,586 | | 604,748 | |
| Amounts charged to KSO Units under contractual
agreement | 9,913 | | 11,627 | | 7,812 | |
| Employer contributions | (724,530 | ) | (435,899 | ) | (714,853 | ) |
| Accrued post-retirement health care benefits cost at
end of the year | 2,983,707 | | 3,048,021 | | 2,945,728 | |

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| 45. |
| --- |
| The actuarial valuation for the post-retirement health care benefits was performed based on
the measurement date as of December 31, 2004, 2005 and 2006 with the reports prepared on March
15, 2005, February 27, 2006 and April 24, 2007 respectively, by PT Watson Wyatt Purbajaga, an
independent actuary in association with Watson Wyatt Worldwide. The principal actuarial
assumptions used by the independent actuary as of December 31, 2004, 2005 and 2006 are as
follows: |

Discount rate	11 %	11 %	10.5 %
Expected long-term return on plan assets	8 %	8 %	8.5 %
Health care cost trend rate assumed
for next year	12 %	9 %	12 %
Ultimate health care cost trend rate	8 %	9 %	8 %
Year that the rate reaches the ultimate trend rate	2007	2006	2011

A 1% increase in the health care cost trend rate would result in service cost and interest costs, and accumulated post-retirement health care benefit obligation as of December 31, 2004, 2005 and 2006 as follows:

Service cost and interest cost	723,941	872,159	1,011,620
Accumulated post-retirement health care benefit
obligation	5,597,965	6,718,434	8,327,481

| 46. |
| --- |
| In the normal course of business, the Company and its subsidiaries entered into transactions
with related parties. It is the Companys policy that the pricing of these transactions be the
same as those of arms-length transactions. |
| The following are significant agreements/transactions with related parties: |

a. Government of the Republic of Indonesia

| i. |
| --- |
| Interest expense for two-step loans amounted to Rp489,220 million, Rp324,652 million
and Rp366,679 million in 2004, 2005 and 2006, respectively. Interest expense for
two-step loan represented 38.5%, 27.6% and 28.5% of total interest expense in 2004,
2005 and 2006, respectively. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

RELATED PARTY INFORMATION (continued)

a. Government of the Republic of Indonesia (continued)

| ii. | The Company and its subsidiaries pay concession fees for telecommunications
services provided and radio frequency usage charges to the Ministry of Communications
(formerly, Ministry of Tourism, Post and Telecommunications) of the Republic of
Indonesia. |
| --- | --- |
| | Concession fees amounted to Rp314,741 million, Rp558,485 million and Rp497,928 million
in 2004, 2005 and 2006, respectively (Note 38), representing 1.6%, 2.3% and 1.7% of
total operating expenses for each year. Radio frequency usage charges amounted to
Rp492,568 million, Rp548,186 million and Rp722,600 million in 2004, 2005 and 2006,
respectively (Note 38), representing 2.5%, 2.2% and 2.4% of total operating expenses
in 2004, 2005, 2006, respectively. |
| | Telkomsel paid the upfront fee for the 3G license amounted to Rp436,000 million and
recognized as an intangible asset (Note 15). |
| iii. | Starting 2005, the Company and its subsidiaries pay Universal Service
Obligation (USO) charges to the MoCI of the Republic of Indonesia pursuant to the
MoCI Regulation No.15/PER/M.KOMINFO/9/2005 of September 30, 2005. |
| | USO charges amounted to Rp307,705 million and Rp383,829 million in 2005 and 2006,
respectively (Note 38), representing 1.2% and 1.3% of total operating expenses in 2005
and 2006, respectively. |

b. Commissioners and Directors Remuneration

| i. | The Company and its subsidiaries provide honorarium and facilities to
support the operational duties of the Board of Commissioners. The total of such
benefits amounted to Rp22,700 million, Rp19,707 million and Rp23,173 million in 2004,
2005 and 2006, respectively, which reflect 0.1% of total operating expenses for each
year. |
| --- | --- |
| ii. | The Company and its subsidiaries provide salaries and facilities to support
the operational duties of the Board of Directors. The total of such benefits amounted
to Rp50,327 million, Rp52,147 million and Rp71,526 million in 2004, 2005 and 2006,
respectively, which reflected 0.2% of total operating expenses in 2004, 2005 and
2006, respectively. |

| c. |
| --- |
| Through December 19, 2002, the Government was the majority and controlling shareholder of
Indosat and therefore, Indosat was under the same common control as the Company.
Following the sale of the Governments 41.94% ownership interest in Indosat on December
20, 2002 (Note 30), the Governments ownership interest in Indosat was reduced to
approximately 15%. The Company still considers Indosat as a related party because the
Government can exert significant influence over the financial and operating policies of
Indosat by virtue of its right to appoint one director and one commissioner of Indosat. |
| Following the merger of Indosat, PT Indosat Multimedia Mobile (IM3), Satelindo and PT
Bimagraha Telekomindo on November 20, 2003, all rights and obligations arising from the
agreements entered by the Company with IM3 and Satelindo were transferred to Indosat. |

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RELATED PARTY INFORMATION (continued)

c.
The Company has an agreement with Indosat for the provision of international
telecommunications services to the public.
The principal matters covered by the agreement are as follows:

| i. | The Company provides a local network for customers to make or receive
international calls. Indosat provides the international network for the customers,
except for certain border towns, as determined by the Director General of Post and
Telecommunications of the Republic of Indonesia. The international telecommunications
services include telephone, telex, telegram, package switched data network,
television, teleprinter, Alternate Voice/Data Telecommunications (AVD), hotline and
teleconferencing. |
| --- | --- |
| ii. | The Company and Indosat are responsible for their respective
telecommunications facilities. |
| iii. | Customer billing and collection, except for leased lines and public phones
located at the international gateways, are handled by the Company. |
| iv. | The Company receives compensation for the services provided in the first
item above, based on the interconnection tariff determined by the Minister of
Communications of the Republic of Indonesia. |

| The Company has also entered into an interconnection agreement between the Companys
fixed- line network and Indosats cellular network in connection with implementation of
Indosat Multimedia Mobile services and the settlement of the related interconnection
rights and obligations. |
| --- |
| The Company also has an agreement with Indosat for the interconnection of Indosats GSM
mobile cellular telecommunications network with the Companys PSTN, enabling each partys
customer to make domestic calls between Indosats GSM mobile network and Telkoms fixed
line network and allowing Indosats mobile customer to access Telkoms IDD service by
dialing 007. |
| The Company has been handling customer billings and collections for Indosat. Indosat is
gradually taking over the activities and performing its own direct billing and collection.
The Company receives compensation from Indosat computed at 1% of the collections made by
the Company beginning January 1, 1995, plus the billing process expenses which are fixed
at a certain amount per record. |
| On December 28, 2006, the Company and Indosat signed amendments to the interconnection
agreements for the fixed line networks (local, long distance and international) and
mobile network for the implementation of the cost-based tariff obligations under the MoCI
Regulations No. 8/2006 (Note 50). These amendments took effect on January 1, 2007. |

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RELATED PARTY INFORMATION (continued)

| c. |
| --- |
| Telkomsel also entered into an agreement with Indosat for the provision of international
telecommunications services to its GSM mobile cellular customers. The principal matters
covered by the agreement are as follows: |

| i. | Telkomsels GSM mobile cellular telecommunications network is connected to
Indosats international gateway exchanges to make outgoing or receive incoming
international calls through Indosats international gateway exchanges. |
| --- | --- |
| ii. | Telkomsels GSM mobile cellular telecommunications network is connected to
Indosats mobile cellular telecommunications network, enabling Telkomsels cellular
subscribers to make outgoing calls to or receive incoming calls from Indosats
cellular subscribers. |
| iii. | Telkomsel receives as compensation for the interconnection, a specific
percentage of Indosats revenues from the related services which are made through
Indosats international gateway exchanges and mobile cellular telecommunications
network. |
| iv. | Billings for calls made by Telkomsels customers are handled by Telkomsel.
Telkomsel is obliged to pay Indosats share of revenue regardless whether billings to
customers have been collected. |
| v. | The provision and installation of the necessary interconnection equipment
is Telkomsels responsibility. Interconnection equipment installed by one of the
parties in another partys locations shall remain the property of the party
installing such equipment. Expenses incurred in connection with the provision of
equipment, installation and maintenance are borne by Telkomsel. |

| Pursuant to the expiration of the agreement between Telkomsel and Indosat with regard to
the provision of international telecommunication services to GSM mobile cellular
customers, in April 2004 Telkomsel and Indosat entered into an interim agreement. Under
the terms of the interim agreement, Telkomsel receives 27% of the applicable tariff for
outgoing international calls from Telkomsel subscribers and Rp800 per minute for incoming
international calls to Telkomsel subscribers. The interim agreement is effective from
March 1, 2004 until such date that Telkomsel and Indosat have entered into a new
agreement. |
| --- |
| The Company and its subsidiaries were charged net interconnection charges from Indosat of
Rp158,285 million, Rp52,798 million and Rp168,295 million in 2004, 2005 and 2006,
respectively, representing 0.5%, 0.1% and 0.3% of the total operating revenues in 2004,
2005 and 2006, respectively. |
| Telkomsel also has an agreement with Indosat on the usage of Indosats telecommunications
facilities. The agreement, which was made in 1997 and is valid for eleven years, is
subject to change based on an annual review and mutual agreement by both parties. The
charges for the usage of the facilities amounted to Rp19,101 million, Rp19,066 million,
Rp17,669 million in 2004, 2005, and 2006, respectively, representing 0.1% of the total
operating expenses in each year. |

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RELATED PARTY INFORMATION (continued)

c.
Other agreements between Telkomsel and Indosat are as follows:

| i. | Agreement on Construction and Maintenance for Jakarta-Surabaya Cable System
(J-S Cable System). |
| --- | --- |
| | On October 10, 1996, Telkomsel, Lintasarta, Satelindo and Indosat (the Parties)
entered into an agreement on the construction and maintenance of the J-S Cable System.
The Parties have formed a management committee which consists of a chairman and one
representative from each of the Parties to direct the construction and operation of
the cable system. The construction of the cable system was completed in 1998. In
accordance with the agreement, Telkomsel shared 19.325% of the total construction
cost. Operating and maintenance costs are shared based on an agreed formula. |
| | Telkomsels share in operating and maintenance costs amounted to Rp2,098 million,
Rp1,187 million and Rp380 million for the years 2004, 2005 and 2006, respectively. |
| ii. | Indefeasible Right of Use Agreement |
| | On September 21, 2000, Telkomsel entered into agreement with Indosat on the use of SEA
ME WE 3 and tail link in Jakarta and Medan. In accordance with the agreement,
Telkomsel was granted an indefeasible right to use certain capacity of the Link
starting from September 21, 2000 until September 20, 2015 in return for an upfront
payment of US$2.7 million. In addition to the upfront payment, Telkomsel is also
charged annual operating and maintenance costs amounting to US$0.1 million. |

In 1994, the Company transferred to Satelindo the right to use a parcel of Company-owned land located in Jakarta which had been previously leased to Telekomindo. Based on the transfer agreement, Satelindo is given the right to use the land for 30 years and can apply for the right to build properties thereon. The ownership of the land is retained by the Company. Satelindo agreed to pay Rp43,023 million to the Company for the 30 years right. Satelindo paid Rp17,210 million in 1994 and the remaining Rp25,813 million was not paid because the Utilization Right (Hak Pengelolaan Lahan) on the land could not be delivered as provided in the transfer agreement. In 2000, the Company and Satelindo agreed on an alternative solution resulting in the payment being treated as a lease expense up to 2006. In 2001, Satelindo paid an additional amount of Rp59,860 million as lease expense up to 2024. As of December 31, 2005 and 2006, the prepaid portion is shown in the consolidated balance sheets as Advances from customers and suppliers.

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RELATED PARTY INFORMATION (continued)

c.	Indosat (continued)
	The Company provides leased lines to Indosat and its subsidiaries, namely Indosat Mega
Media and Lintasarta. The leased lines can be used by those companies for telephone,
telegraph, data, telex, facsimile or other telecommunication services. Revenue earned from
these transactions amounted to Rp109,814 million, Rp126,425 million and Rp164,900 million
in 2004, 2005 and 2006, respectively, representing 0.3% of total operating revenues for
each year.
	Lintasarta utilizes the Companys satellite transponders or frequency channels. Revenue
earned from these transactions amounted to Rp14,486 million, Rp8,125 million and Rp6,987
million in 2004, 2005 and 2006, respectively, representing less than 0.1% of total
operating revenues for each year.
	Telkomsel has an agreement with Lintasarta and PT Artajasa Pembayaran Elektronis
(Artajasa which 39.8% shares owned by Indosat) for the usage of data communication
network system. The charges from Lintasarta and Artajasa for the services amounted to
Rp21,407 million, Rp23,109 million and Rp44,208 million in 2004, 2005 and 2006,
respectively, representing 0.1% of total operating expenses for each year.
d.	Others
	Transactions with all stated owned enterprises are considered as related parties
transactions:

| (i) | The Company provides telecommunication services to substantially all
Government agencies in Indonesia which the transaction is treated as well as the
transaction with third parties customers. |
| --- | --- |
| (ii) | The Company has entered into agreements with Government agencies and
associated companies, namely CSM, Patrakom and KSO VII (for the years 2004 and 2005,
and for the period January September 2006), for utilization of the Companys
satellite transponders or frequency channels. Revenue earned from these transactions
amounted to Rp51,046 million, Rp66,804 million and Rp87,275 million in 2004, 2005 and
2006, respectively, representing 0.2% of total operating revenues for each year. |

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RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (iii) | The Company provides leased lines to associated companies, namely CSM,
Patrakom and PSN. The leased lines can be used by the associated companies for
telephone, telegraph, data, telex, facsimile or other telecommunications services.
Revenue earned from these transactions amounted to Rp25,714 million, Rp30,678 million
and Rp44,368 million in 2004, 2005 and 2006, respectively, representing 0.1% of the
total operating revenues for each year. |
| --- | --- |
| (iv) | The Company purchases property and equipment including construction and
installation services from a number of related parties. These related parties include
PT Industri Telekomunikasi Indonesia (PT INTI) and Koperasi Pegawai Telkom. Total
purchases made from these related parties amounted to Rp268,901 million, Rp337,648
million and Rp153,541 million in 2004, 2005 and 2006, respectively, representing
2.4%, 2.5% and 0.9% of the total fixed asset purchased in 2004, 2005 and 2006,
respectively. |
| (v) | PT INTI is also a major contractor and supplier of equipment, including
construction and installation services for Telkomsel. Total purchases from PT INTI in
2004, 2005 and 2006 amounted to Rp217,668 million, Rp67,555 million and Rp90,519
million, respectively, representing 1.9%, 0.5% and 0.5% of the total fixed assets
purchased in 2004, 2005, and 2006, respectively. |
| (vi) | Telkomsel has an agreement with PSN for the lease of PSNs transmission
link. Based on the agreement, which was made on March 14, 2001, the minimum lease
period is 2 years since the operation of the transmission link and is extendable
subject to agreement by both parties. The lease charges amounted to Rp49,710 million,
Rp95,206 million and Rp131,414 million in 2004, 2005 and 2006, respectively,
representing 0.3%, 0.4% and 0.4% of the total operating expenses for each year. |
| (vii) | The Company and its subsidiaries carry insurance on their property, plant
and equipment against property losses, inventory and on employees social security
obtained from PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and PT Persero
Asuransi Jiwasraya, which are state-owned insurance companies. Insurance premiums
charged amounted to Rp148,279 million, Rp58,338 million and Rp105,463 million in
2004, 2005 and 2006, respectively, representing 0.8%, 0.2% and 0.4% of total
operating expenses in 2004, 2005 and 2006, respectively. |
| (viii) | The Company and its subsidiaries maintain current accounts and time deposits in
several state-owned banks. In addition, some of those banks are appointed as
collecting agents for the Company. Total placements in form of current accounts and
time deposits, and mutual funds in state-owned banks amounted to Rp3,315,428 million
and Rp5,737,676 million as of December 31, 2005 and 2006, respectively, representing
5.3% and 7.6% of the total assets as of December 31, 2005 and 2006, respectively.
Interest income recognized during 2004, 2005 and 2006 were Rp150,367 million,
Rp123,951 million and Rp405,176 million representing 47.3%, 36% and 62% of total
interest income in 2004, 2005 and 2006, respectively. |

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RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (ix) | Telkomsel and Dayamitra have loans from state-owned banks. Interest expense
on the loans for 2004, 2005 and 2006 amounted to Rp9,115 million, Rp5,055 million and
Rp86,270 million, respectively, representing 0.7%, 0.4% and 6.7% of the total
interest expense in 2004, 2005 and 2006, respectively. |
| --- | --- |
| (x) | The Company leases buildings, purchases materials and construction
services, and utilizes maintenance and cleaning services from Dana Pensiun Telkom and
PT Sandhy Putra Makmur, a subsidiary of Yayasan Sandikara Putra Telkom a foundation
managed by Dharma Wanita Telkom. Total charges from these transactions amounted to
Rp24,921 million, Rp39,146 million and Rp79,599 million in 2004, 2005 and 2006,
respectively, representing 0.1%, 0.2% and 0.3% of the total operating expenses in
2004, 2005 and 2006, respectively. |
| (xi) | The Company and its subsidiaries earned (were charged for) interconnection
revenues (charges) from PSN, with a total of (Rp5,495 million), Rp1,072 million and
Rp9,715 million in 2004, 2005 and 2006, respectively, representing (0.02%), less than
0.01% and less than 0.02% of the total operating revenues in 2004, 2005 and 2006,
respectively. |
| (xii) | In addition to revenues earned under the KSO Agreement (Note 48), the
Company also earned income from building rental, repairs and maintenance services and
training services provided to the KSO Units, amounting to Rp18,449 million, Rp26,769
million and Rp14,549 million in 2004, 2005 and 2006, respectively, representing 0.1%,
0.1% and less than 0.1% of the total operating revenues in 2004, 2005 and 2006,
respectively. |
| (xiii) | The Company has revenue-sharing arrangements with Koperasi Pegawai Telkom
(Kopegtel). Kopegtels share in the revenues from these arrangements amounted to
Rp20,560 million, Rp31,909 million and Rp28,913 million in 2004, 2005 and 2006,
respectively, representing 0.1% of the total operating revenues for each year. |
| (xiv) | Telkomsel has operating lease agreements with Patrakom and CSM for the
usage of their transmission link for a period of 3 years, subject to extensions. The
lease charges amounted to Rp25,032 million, Rp123,857 million and Rp192,146 million
in 2004, 2005 and 2006, respectively, representing 0.1%, 0.5% and 0.6% of the total
operating expenses in 2004, 2005 and 2006, respectively. |
| (xv) | Kisel is a cooperative that was established by Telkomsels employees to
engage in car rental services, printing and distribution of customer bills,
collection and other services principally for the benefit of Telkomsel. For these
services, Kisel charged Telkomsel Rp109,548 million, Rp78,714 million and Rp322,851
million in 2004, 2005 and 2006, respectively. Telkomsel also has dealership
agreements with Kisel for distribution of SIM cards and pulse reload vouchers. Total
SIM cards and pulse reload vouchers which were sold to Kisel amounted to Rp816,591
million, Rp1,158,559 million and Rp1,568,701 million in 2004, 2005 and 2006,
respectively. |

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RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (xvi) | Infomedia provides electronic media and call center services to KSO Unit
VII (for the years 2004 and 2005, and for the period January September 2006) based
on an agreement dated March 4, 2003. Revenue earned from these transactions in 2004,
2005 and 2006 amounted to Rp5,541 million, Rp9,221 million and Rp6,874 million,
representing 0.02% 0.02% and 0.01% of total operating revenues in 2004, 2005 and
2006, respectively. |
| --- | --- |
| (xvii) | The Company has also seconded a number of its employees to related parties to
assist them in operating their business. In addition, the Company provided certain of
its related parties with the right to use its buildings free of charge. |
| (xviii) | Telkomsel has procurement agreements with PT Graha Informatika Nusantara, a
subsidiary of Dana Pensiun Telkom for installation and maintenance of equipment.
Total procurement for installations of equipment amounted to Rp nil, Rp127,661
million and Rp102,982 million in 2004, 2005 and 2006, respectively; and for
maintenance of equipment amounted to Rp nil, Rp36,486 million and Rp45,422 million
in 2004, 2005 and 2006, respectively. |

Presented below are balances of accounts with related parties:

	% of		% of
Amount	Total Assets	Amount	Total Assets
a. Cash and cash equivalents (Note 6)	3,058,854	4.92	5,554,384	7.39
b. Temporary investments	22,064	0.04	84,492	0.11
c. Trade receivables, net (Note 7)	530,370	0.85	520,689	0.69
d. Other receivables
KSO Units	93,959	0.15
State-owned banks (interest)	8,555	0.01	19,242	0.03
Government agencies	421	0.00	716	0.00
Other	16,304	0.03	3,133	0.00
Total	119,239	0.19	23,091	0.03
e. Prepaid expenses (Note 9)	299,799	0.48	451,845	0.60
f. Other current assets (Note 10)	159,537	0.26	6,822	0.01
g. Advances and other non-current
assets (Note 14)
Bank Mandiri	90,668	0.15	91,862	0.12
Peruri	813	0.00	813	0.00
Total	91,481	0.15	92,675	0.12
h. Escrow accounts (Note 16)	6,369	0.01	116	0.00

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RELATED PARTY INFORMATION (continued)

	% of Total		% of Total
Amount	Liabilities	Amount	Liabilities
i. Trade payables (Note 17)
Government agencies	660,166	2.03	828,771	2.13
KSO Units	15,281	0.05
Indosat	46,372	0.14	71,417	0.18
Koperasi Pegawai Telkom	78,673	0.24	103,758	0.27
PSN			62	0.00
PT INTI	125,792	0.39	37,820	0.10
Others	88,105	0.27	74,668	0.19
Total	1,014,389	3.12	1,116,496	2.87
j. Accrued expenses (Note 18)
Government agencies and
state-owned banks	395,791	1.22	93,101	0.24
Employees	452,413	1.39	2,239,243	5.76
PT Asuransi Jasa Indonesia	2,038	0.01
Others	38,442	0.11
Total	888,684	2.73	2,332,344	6.00
k. Short-term bank loans (Note 20)
Bank Mandiri			233,333	0.60
Bank BNI			200,000	0.51
Total			433,333	1.11
l. Two-step loans (Note 22)	5,329,477	16.36	4,476,613	11.51
m. Accrued long service awards
(Note 44)	524,524	1.61	596,325	1.53
n. Accrued post-retirement health
care
benefits (Note 45)	3,048,021	9.36	2,945,728	7.58
o. Long-term bank loans (Note 24)
Bank Mandiri	14,918	0.05	950,000	2.44
Bank BNI			300,000	0.77
Total	14,918	0.05	1,250,000	3.21

| 47. |
| --- |
| The Company and its subsidiaries have three main business segments operated in Indonesia:
fixed wireline, fixed wireless and cellular. The fixed wireline segment provides local,
domestic long-distance and international (starting 2004) telephone services, and other
telecommunications services (including among others, leased lines, telex, transponder,
satellite and Very Small Aperture Terminal-VSAT) as well as ancillary services. The fixed
wireless segment provides CDMA-based telecommunication services which offer customers the
ability to use a wireless handset with limited mobility (within a local code area). The
cellular segment provides basic telecommunication services, particularly mobile cellular
telecommunication services. Operating segments that do not individually represent more than
10% of the Companys revenues are presented as Other comprising the telephone directories
and building management businesses. |
| Segment revenues and expenses include transactions between business segments and are accounted
for at prices that management believes represent market prices. |

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SEGMENT INFORMATION (continued)


Fixed		Fixed						Total Before				Total
Wireline		Wireless		Cellular		Other		Elimination		Elimination		Consolidated
Segment results
External operating revenues	18,860,835		575,436		14,201,786		309,709		33,947,766				33,947,766
Inter-segment operating
revenues	4,302		(51,083	)	534,790		51,063		539,072		(539,072	)
Total segment revenues	18,865,137		524,353		14,736,576		360,772		34,486,838		(539,072	)	33,947,766
Segment expenses	(12,207,726	)	(789,599	)	(6,757,243	)	(320,698	)	(20,075,266	)	715,380		(19,359,886	)
Segment result	6,657,411		(265,246	)	7,979,333		40,074		14,411,572		176,308		14,587,880
Interest expense													(1,270,136	)
Interest income													317,941
Gain (loss) on foreign exchange net													(1,220,760	)
Other income (expenses) net													331,050
Tax expense													(4,178,526	)
Equity in net income (loss)
of associated companies													3,420
Income before minority
interest													8,570,869
Unallocated minority
interest													(1,956,301	)
Net income													6,614,568
Other information
Segment assets	34,493,795		3,048,671		18,988,939		414,165		56,945,570		(2,396,426	)	54,549,144
Investments in associates	73,323				9,290				82,613				82,613
Unallocated corporate
assets													1,547,435
Total consolidated assets													56,179,192
Segment liabilities	(2,821,945	)	(86,780	)	(1,712,623	)	(87,346	)	(4,708,694	)	987,442		(3,721,252	)
Unallocated corporate
liabilities													(29,391,472	)
Total consolidated liabilities													(33,112,724	)
Capital expenditures	(4,340,591	)	(1,807,518	)	(4,982,744	)	(66,691	)	(11,197,544	)			(11,197,544	)
Depreciation and amortization	(3,568,196	)	(229,983	)	(2,651,028	)	(18,740	)	(6,467,947	)	14,590		(6,453,357	)
Amortization of goodwill and
other intangible assets	(851,060	)					(21,270	)	(872,330	)			(872,330	)
Other non-cash expenses	(244,356	)			(100,737	)	(5,338	)	(350,431	)			(350,431	)

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SEGMENT INFORMATION (continued)


Fixed		Fixed						Total Before				Total
Wireline		Wireless		Cellular		Other		Elimination		Elimination		Consolidated
Segment results
External operating revenues	19,637,386		1,449,725		20,384,856		335,217		41,807,184				41,807,184
Inter-segment operating
revenues	305,382		(167,935	)	691,188		70,475		899,110		(899,110	)
Total segment revenues	19,942,768		1,281,790		21,076,044		405,692		42,706,294		(899,110	)	41,807,184
Segment expenses	(14,378,819	)	(2,174,656	)	(8,774,996	)	(328,184	)	(25,656,655	)	1,020,221		(24,636,434	)
Segment result	5,563,949		(892,866	)	12,301,048		77,508		17,049,639		121,111		17,170,750
Interest expense													(1,177,268	)
Interest income													344,686
Gain (loss) on foreign exchange net													(516,807	)
Other income (expenses) net													409,184
Tax expense													(5,183,887	)
Equity in net income (loss)
of associated companies													10,879
Income before minority
interest													11,057,537
Unallocated minority
interest													(3,063,971	)
Net income													7,993,566
Other information
Segment assets	33,980,509		3,617,374		25,444,587		455,644		63,498,114		(2,260,681	)	61,237,433
Investments in associates	92,110				9,290				101,400				101,400
Unallocated corporate
assets													832,211
Total consolidated assets													62,171,044
Segment liabilities	(2,890,445	)	(459,284	)	(2,547,874	)	(111,620	)	(6,009,223	)	886,435		(5,122,788	)
Unallocated corporate
liabilities													(27,450,662	)
Total consolidated liabilities													(32,573,450	)
Capital expenditures	(2,037,866	)	(1,388,876	)	(10,085,755	)	(40,460	)	(13,552,957	)			(13,552,957	)
Depreciation and amortization	(4,006,246	)	(537,284	)	(3,046,632	)	(23,322	)	(7,613,484	)	11,919		(7,601,565	)
Write-down of assets and loss on
procurement commitments			(696,127	)					(696,127	)			(696,127	)
Amortization of goodwill and
other intangible assets	(896,883	)					(21,270	)	(918,153	)			(918,153	)
Other non-cash expenses	(292,357	)	(21,582	)	(171,192	)	(4,783	)	(489,914	)			(489,914	)

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47. SEGMENT INFORMATION (continued)


Fixed		Fixed						Total Before				Total
Wireline		Wireless		Cellular		Other		Elimination		Elimination		Consolidated
Segment results
External operating revenues	20,137,847		2,806,204		28,205,052		144,905		51,294,008				51,294,008
Inter-segment operating
revenues	514,589		(253,397	)	863,268		333,849		1,458,309		(1,458,309	)
Total segment revenues	20,652,436		2,552,807		29,068,320		478,754		52,752,317		(1,458,309	)	51,294,008
Segment expenses	(16,257,545	)	(1,815,803	)	(12,839,526	)	(384,263	)	(31,297,137	)	1,596,370		(29,700,767	)
Segment result	4,394,891		737,004		16,228,794		94,491		21,455,180		138,061		21,593,241
Interest expense													(1,286,354	)
Interest income													654,984
Gain (loss) on foreign
exchangenet													836,328
Other income (expenses) net													202,025
Tax expense													(7,039,927	)
Equity in net income (loss) of
associated companies													(6,619	)
Income before minority
interest													14,953,678
Unallocated minority
interest													(3,948,101	)
Net income													11,005,577
Other information
Segment assets	33,406,552		5,856,074		37,280,255		575,823		77,118,704		(2,072,156	)	75,046,548
Investments in associates	79,907				9,290				89,197				89,197
Total consolidated assets													75,135,745
Total consolidated liabilities	(26,270,257	)	(1,714,144	)	(12,688,285	)	(284,995	)	(40,957,681	)	2,077,712		(38,879,969	)
Capital expenditures	(1,822,867	)	(338,795	)	(14,838,596	)	(90,769	)	(17,091,027	)			(17,091,027	)
Depreciation and amortization	(4,290,872	)	(452,766	)	(4,427,771	)	(34,536	)	(9,205,945	)	9,916		(9,196,029	)
Amortization of goodwill and
other intangible assets	(932,724	)			(11,679	)			(944,403	)			(944,403	)
Other non-cash expenses	(325,055	)			(127,521	)	(5,676	)	(458,252	)			(458,252	)

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48.	JOINT OPERATION SCHEMES (KSO)
	In 1995, the Company and five investors (PT Pramindo Ikat Nusantara, PT AriaWest
International, PT Mitra Global Telekomunikasi Indonesia, PT Dayamitra Telekomunikasi and PT
Bukaka Singtel International) entered into agreements for Joint Operation Schemes (KSO) and
KSO construction agreements for the provision of telecommunication facilities and services for
the Sixth Five-Year Development Plan (Repelita VI) of the Republic of Indonesia. The five
investors undertook the development and operation of the basic fixed telecommunications
facilities and services in five of the Companys seven regional divisions.
	Following the Indonesian economics crisis that began in mid-1997, certain KSO investors
experienced difficulties in fulfilling their commitment under the KSO agreements. As remedial
measures instituted by both the Company and those KSO investors did not fully remedy this
situation, the Company acquired those KSO investors (Dayamitra in 2001, Pramindo in 2002 and
AWI in 2003 Note 5a, 5b, 5c) and currently controls the related KSOs through its ownership
of such KSO investors. The Company acquired full operational control of the KSO IV operation
in January 2004 (Note 5d) and KSO VII operations in October 2006 (Note 5e). Accordingly, the
revenue sharing percentage in those KSOs is no longer relevant as the financial statements of
the acquired KSO investors and the related KSOs are consolidated into the Companys financial
statements since the date of acquisition.
49.	REVENUE-SHARING ARRANGEMENTS
	The Company has entered into separate agreements with several investors under Revenue-Sharing
Arrangements (RSA) to develop fixed lines, public card-phone booths (including their
maintenance), data and internet network and related supporting telecommunications facilities.
	As of December 31, 2006, the Company has 90 RSA with 67 partners. The RSA are located mainly
in Palembang, Pekanbaru, Jakarta, East Java, Kalimantan, Makassar, Pare-pare, Manado,
Denpasar, Mataram and Kupang with concession periods ranging from 24 to 176 months.
	Under the RSA, the investors finance the costs incurred in developing telecommunications
facilities. Upon completion of the construction, the Company manages and operates the
facilities and bears the cost of repairs and maintenance during the revenue-sharing period.
The investors legally retain the rights to the property, plant and equipment constructed by
them during the RSA periods. At the end of each the RSA period, the investors transfer the
ownership of the facilities to the Company at a nominal price.
	Generally, the revenues earned from the customers in the form of line installation charges are
allocated in full to the investors. The revenues from outgoing telephone pulses and monthly
subscription charges are shared between the investors and the Company based on certain agreed
ratio.
	The net book value of property, plant and equipment under RSA which have been transferred to
property, plant and equipment amounted to Rp55,441 million and Rp14,662 million on December
31, 2005 and 2006, respectively (Note 13).
	The investors share of revenues amounted to Rp891,165 million, Rp513,528 million and
Rp413,263 million in 2004, 2005 and 2006, respectively.

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| 50. |
| --- |
| Under Law No. 36 year 1999 and Government Regulation No. 52 year 2000, tariffs for the use of
telecommunications network and telecommunication services are determined by providers based on
the tariffs category, structure and with respect to fixed line telecommunication services
price cap formula set by the Government. |
| Fixed Line Telephone Tariffs |
| Fixed line telephone tariffs are imposed for network access and usage. Access charges consist
of a one-time installation charge and a monthly subscription charge. Usage charges are
measured in pulses and classified as either local or domestic long-distance. The tariffs
depend on call distance, call duration, the time of day, the day of the week and holidays. |
| Tariffs for fixed line telephone are regulated under Minister of Communications Decree No.
KM.12 year 2002 dated January 29, 2002 concerning the addendum of the decree of Minister of
Tourism, Post and Telecommunication (MTPT) No. 79 year 1995, concerning the Method for Basic
Tariff Adjustment on Domestic Fixed Line Telecommunication Services. Furthermore, the Minister
of Communications issued Letter No. PK 304/1/3 PHB-2002 dated January 29, 2002 concerning
increase in tariffs for fixed line telecommunications services. According to the letter,
tariffs for fixed line domestic calls would increase by 45.49% over three years. The average
increase in 2002 was 15%. This increase was effective on February 1, 2002. The implementation
of the planned increase in the tariff in 2003, however, was postponed by the Minister of
Communications through letter No. PR.304/1/1/PHB-2003 dated January 16, 2003. |
| Based on the Announcement No. PM.2 year 2004 of the Minister of Communications dated March 30,
2004, the Company adjusted the tariffs effective April 1, 2004 as follows: |

	Local charges increased by an average of 28%
	Direct long distance charges decreased by an average of 10%
	Monthly subscription charges increased by an average of 12% to 25%, depending on
customers segment.

For the subsequent tariff establishment, the Government has issued initial tariff formula and adjustment tariff which are stipulated in Minister Decree No.09/Per/M.KOMINFO/02/2006 concerning Procedure for Initial Tariff Establishment and Tariff Change for Basic Telephone Service Through Fixed Line dated February 8, 2006, replacing Minister of Communications Decree No. KM. 12 year 2002 on January 29, 2002 regarding the addendum of the decree of Minister of Tourism, Post and Telecommunication (MTPT) No. 79 year 1995 concerning Method for Basic Tariff Adjustment on Domestic Fixed Line Telecommunication Services.

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| 50. |
| --- |
| Mobile Cellular Telephone Tariffs |
| Tariffs for cellular providers are set on the basis of the MTPT Decree No.
KM.27/PR.301/MPPT-98 dated February 23, 1998. Under the regulation, the cellular tariffs
consist of activation fees, monthly charges and usage charges. |
| The maximum tariff for the activation fee is Rp200,000 per new subscriber number. The maximum
tariff for the monthly charges is Rp65,000. Usage charges consist of the following: |

a.
The maximum basic airtime tariff charged to the originating cellular subscriber is
Rp325/minute. Charges to the originating cellular subscriber are calculated as follows:

1. Cellular to cellular	: 2 times airtime rate
2. Cellular to PSTN	: 1 time airtime rate
3. PSTN to cellular	: 1 time airtime rate
4. Card phone to cellular	: 1 time airtime rate plus 41% surcharge

b. Usage tariffs

| 1. | Usage local tariffs charged to a cellular subscriber who makes a call to a
fixed line (PSTN). For the use of network, the tariffs per minute are computed at
50% of the prevailing local PSTN tariffs. |
| --- | --- |
| 2. | The long-distance usage tariffs between two different service areas charged
to a cellular subscriber are the same as the prevailing tariffs for domestic
long-distance call (SLJJ) applied to PSTN subscribers. |

| Based on the Decree No. KM. 79 year 1998 of the Ministry of Communications, the maximum
tariff for prepaid customers may not exceed 140% of the peak time tariffs for post-paid
subscribers. |
| --- |
| Based on the Announcement No. PM.2 year 2004 of the Minister of Communications dated March
30, 2004, Telkomsel adjusted its tariffs by eliminating the tariff subsidy from
long-distance calls. This resulted in a 9% tariff increase. |
| For the subsequent tariff setting, the Government has issued calculation formula for
tariff change on basic telephone service through mobile cellular network which is
stipulated in Minister Decree No. 12/Per/M.KOMINFO/02/2006 concerning Procedure for Tariff
Change Establishment for Basic Telephone Service Through Mobile Cellular Network dated
February 28, 2006, replacing Minister of Communications Decree No. KM.12 year 2002 on January 29, 2002 regarding the
addendum of the decree of Minister of Tourism, Post and Telecommunication No.
KM.27/PR.301/MPPT-98 date February 23, 1998 concerning Mobile Cellular Telephone Line
Tariff. |

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50.
Mobile Cellular Telephone Tariffs (continued)

| b. |
| --- |
| Due to the commencing of Minister Decree No. 12/Per/M.KOMINFO/02/2006 concerning the
interconnection charges thereby implemented after Minister Decree No.
08/Per/M.KOMINFO/02/2006 concerning Interconnection. |

| Interconnection Tariffs |
| --- |
| The Government establishes the percentage of tariffs to be received by each operator in
respect of calls that transit multiple networks. The Telecommunications Law and Government
Regulation No. 52 of 2000 provides for the implementation of a new policy to replace the
current revenue sharing policy. Under the new policy, which has not yet been implemented, the
operator of the network on which calls terminate would determine the interconnection charge to
be received by it based on a formula to be mandated by the Government, which would be intended
to have the effect of requiring that operators charge for calls based on the costs of carrying
such calls. On March 11, 2004, the MoCI issued Decree No. 32/2004, which stated that
cost-based interconnection fees shall be applicable beginning January 1, 2005. The effective
date of this decree was subsequently postponed until January 1, 2007 based on the Ministry
Regulation No. 08/Per/M.KOMINF/02/2006 dated February 8, 2006. On December 28, 2006 the
Company and all network operators signed amendments to their interconnection agreements for
its fixed line networks (local, domestic long distance and international) and mobile network
for the implementation of the cost-based tariff obligations under the MoCI Regulations No.
08/Per/M.KOMINFO/02/2006. These amendments took effect on January 1, 2007. |

| i. |
| --- |
| The Governments National Fundamental Technical Plan set forth in Decree No. KM.4/2001, as
amended by Decree No. KM.28/2004, sets out the technical requirements, routing plans and
numbering plans for interconnection of the networks of various telecommunications
operators among themselves and with the Companys fixed line network. Under the National
Fundamental Technical Plan, all operators are permitted to interconnect with the Companys
fixed line network for access thereto and to other networks, such as international
gateways and the networks of other cellular operators. In addition, cellular operators may
interconnect directly with other networks without connecting to the Companys fixed line
network. Currently, the fees for interconnection are set forth in Decree No. KU.506/1997,
Decree No. KM.46/1998, Decree No. KM.37/1999 and Decree No. KM.30/2000. |
| Fixed line Interconnection with Indosat. Currently, the fixed line interconnection
between the Company and Indosat is generally based on their agreement signed in 2005. Pursuant to the
agreement between the Company and Indosat, for interconnection of local and domestic
long-distance calls, the operator of the network on which the calls terminate receives an
agreed amount per minute. |

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50.
Interconnection Tariffs (continued)

i.	Interconnection with Fixed line Network (continued)
	Other Fixed Wireline Interconnection. Since September 1, 1998, the Company has been
receiving a share of the tariffs from Batam Bintan Telekomunikasi (BBT), which is a
local operator with a special coverage area on Batam Island, for each successful call that
transits or terminates on the Companys fixed line network. Under the interconnection
agreement, for local interconnection calls, revenues are shared on a sender keeps all
basis. For local calls originating on BBTs network terminating on a cellular network and
vice versa which transit through the Companys fixed line network, the Company receives an
agreed percentage of the prevailing tariff for local calls. For interconnection of
domestic long-distance calls, the operator of the network on which the calls terminate or
transit receives an agreed percentage of the prevailing long-distance tariff. In addition,
BBT is to receive a certain fixed amount for each minute of incoming and outgoing
international calls, from and to BBT that transit through the Companys fixed line network
and use the Companys IDD service and 50% of the prevailing interconnection tariff for
incoming and outgoing international calls that transit through the Companys fixed line
network and use Indosats IDD service.
	Other Fixed Wireless Interconnection. Fixed wireless networks may interconnect with the
Companys fixed line network at the Companys gateway. At present, other than the Company
and Indosat, PT Bakrie Telecom (BT) also operates a fixed wireless network in Indonesia.
The fixed wireless interconnection between the Company and BT is currently based on the
most recent interconnection agreement signed in 2005. Pursuant to the agreement, for
interconnection of local calls, the operator of the network on which the calls terminate
receives an agreed amount per minute. For local calls originating on BTs network
terminating on a cellular network and vice versa which transit through the Companys fixed
line network, the Company receives an agreed percentage of the prevailing tariff for local
calls. For domestic long-distance calls that originate on the Companys fixed line network
and terminate on BTs network, BT receives an agreed amount per minute. In the reverse
situation and for transit long-distance calls through the Companys fixed line network,
the Company receives an agreed percentage of the prevailing long-distance tariff. In
addition, BT is to receive a certain fixed amount for each minute of incoming and outgoing
international calls to and from BT that transit through the Companys fixed line network
and use the Companys IDD service and 25% of prevailing interconnection tariff of incoming
and outgoing international calls that transit through the Companys fixed line network and
use Indosats IDD service.
ii.	Cellular Interconnection
	In respect of local interconnection calls, including transit calls, between a cellular
network and the Companys fixed line network, the Company receives 50% of the prevailing
fixed-line usage tariff for local pulse. For local calls from the Companys fixed line network to a cellular
network, the Company charges its subscribers the applicable local call tariff plus an
airtime charge, and pays the cellular operator the airtime charge. For local calls between
cellular telecommunications networks, the originating cellular operator pays the
terminating cellular operator the airtime charges.

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50.
Interconnection Tariffs (continued)

ii.	Cellular Interconnection (continued)
	The current Interconnection Decree, effective April 1, 1998, assumes that it is possible
for long-distance calls to be carried by more than one network. Pursuant to the
Interconnection Decree, for long-distance calls which originate on the Companys fixed
line network, the Company is entitled to retain a portion of the prevailing long-distance
tariff, which ranges from 40% of the tariff in cases where the entire long-distance
portion is carried by a cellular operator up to 85% of the tariff in cases where the
entire long-distance portion is carried by the Companys fixed line network. For
long-distance calls that originate from a cellular subscriber, the Company is entitled to
retain a portion of the prevailing long-distance tariff, which ranges from 25% of the
tariff in cases where the call originates from a cellular subscriber, transits the
Companys fixed line network and terminates on another cellular subscriber with the entire
long-distance portion carried by a cellular operator, up to 85% of the tariff in cases
where the entire long-distance portion is carried by the Companys fixed line network and
terminates on the Companys fixed line network.
iii.	International Interconnection
	Interconnection on the Companys domestic fixed line network for international calls
consists of access charges and usage charges. The following table sets forth the current
international interconnection tariff, effective as of December 1, 1998, for IDD calls
which are routed through Indosats international gateways and which originate, transit or
terminate on the Companys domestic fixed line network and Telkomsels cellular network,
pursuant to Ministerial Decree No. KM.37 of 1999:

Description	Tariff
Access charge	Rp850 / successful call
Usage charge	Rp550 / successful paid minute

| | In addition, since June 2004, the Company has provided IDD services. Currently, the
Companys IDD service can be accessed by subscribers of all telecommunication operators in
Indonesia. Interconnection and access charges for originating calls using the Companys
IDD service or terminating incoming international calls routed through the Companys
international voice telecommunications gateway are negotiated with each respective
domestic operator. |
| --- | --- |
| iv. | Satellite Phone Interconnection |
| | Since the fourth quarter of 2001, the Company has been receiving a share of revenues
arising from interconnection transactions with PSN, a national satellite operator. Under
the agreement, in respect of the interconnection calls between the Company and PSN, the
Company receives Rp800 per minute for network charges and an additional Rp300 per minute origination fee if the
call originates from the Companys fixed line network. |

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50.
Interconnection Tariffs (continued)

| v. |
| --- |
| Previously, Minister of Communications Decree No. KM.23/2002 provided that access charges
and network lease charges for the provision of VoIP services were to be agreed between
network operators and VoIP operators. On March 11, 2004, the Minister of Communications
issued Decree No. 31/2004, which stated that interconnection charges for VoIP are to be
fixed by the Minister of Communications. Currently, the Minister of Communications has not
yet determined what the new VoIP interconnection charges will be. Until such time as the
new charges are fixed, the Company will continue to receive connection fees for calls that
originate or terminate on the Companys fixed line network at agreed fixed amount per
minute. |

| Public Phone Kiosk (Wartel) Tariff |
| --- |
| On August 7, 2002, the Minister of Communications issued Decree No. KM. 46 year 2002 regarding
the operation of phone kiosks. The decree provides that the Company is entitled to retain a
maximum of 70% of the phone kiosk basic tariffs for domestic calls and up to 92% of phone
kiosk basic tariffs for international calls. It also provides that the airtime from the
cellular operators shall generate at a minimum 10% of the kiosk phones revenue. |
| The Government issued Ministry Regulation No. PM.05/Per/M.KOMINFO/I/2006 dated January 30,
2006 about Public Phone Kiosk Operation which replace the Minister of Communications Decree
No. KM.46 year 2002. There are no tariff differences between both decrees. This regulation is
effective upon its issuance date. |
| Tariff for Other Services |
| The tariffs for satellite rental, and other telephony and multimedia services are determined
by the service provider by taking into account the expenditures and market price. The
Government only determines the tariff formula for basic telephony services. There is no
stipulation for the tariff of other services. |
| Universal Service Obligation (USO) |
| On September 30, 2005, the MoCI issued Regulation No. 15/PER/M.KOMINFO/9/2005, which sets
forth the basic policies underlying the USO program and requires telecommunications operators
in Indonesia to contribute 0.75% of gross revenues (with due consideration for bad debt and
interconnection charges) for USO development. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

COMMITMENTS

| a. |
| --- |
| As of December 31, 2006, the amount of capital expenditures committed under contractual
arrangements, principally relating to procurement and installation of switching
equipment, transmission equipment and cable network, are as follows: |

	Amounts in — Foreign Currencies	Equivalent
Currencies	(in millions)	in Rupiah
Rupiah		6,484,482
U.S. Dollar	504	4,554,896
Euro	130	1,546,220
Total		12,585,598

The above balance includes the following significant agreements:

| (i) |
| --- |
| In August 2004, Telkomsel entered into the following agreements with Motorola Inc and
PT Motorola Indonesia, Ericsson AB and PT Ericsson Indonesia, Nokia Corporation and
PT Nokia Network, and Siemens AG, for the maintenance and procurement of equipment
and related services, involving: |

	Joint Planning and Process Agreement
	Equipment Supply Agreement (ESA)
	Technical Service Agreement (TSA)
	Site Acquisition and Civil, Mechanical and Engineering Agreement (SITAC and
CME)

| The agreements contain lists of charges to be used in determining the fees payable by
Telkomsel for all equipment and related services to be procured during the roll-out
period, upon the issuance of Purchase Order (PO). |
| --- |
| The agreements are valid and effective as of the execution date by the respective
parties for a period of three years, provided that the suppliers are able to meet
requirements set out in each PO. In the event that the suppliers fail to meet those
requirements, Telkomsel may terminate the agreements at its sole discretion with a
prior written notice. |
| In accordance with the agreements, the parties also agreed that the charges specified
in the price list would apply to equipment and services (ESA and TSA) and services
(SITAC and CME) acquired from the suppliers between May 26, 2004 and the effective date, except
for those acquired from Siemens under TSA relating to equipment and the maintenance
of Telkomsels Switching Sub System (SSS) and Base Station Subsystem (BSS) that
were acquired between July 1, 2004 and the effective date. Prices are subject to
quarterly review. |

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(i)	Procurement Agreements (continued)
	Subsequently, for the purpose of providing telecommunications services with 3G
technology, in September and October 2006, Telkomsel entered into agreements with
Nokia Corporation and PT Nokia Network, Ericsson AB and PT Ericsson Indonesia, and
Siemens Network GmbH and Co.KG, for network contsruction (Roll-out Agreement) and PT
Nokia Network, Ericsson Indonesia; and Siemens Network GmbH and Co.KG for network
operations and maintenance (Managed Operations Agreement and Technical Support
Agreement). The agreements are valid and effective as of the execution date by the
respective parties (the effective date) until the later of December 31, 2008 and the
date on which the last PO terminates under the agreement or expires in respect of any
PO issued prior to December 31, 2008 providing that the supplier are able to meet
requirements set out in each PO.
(ii)	Metro Junction and Optical Network Access Agreement for Regional Division
III with PT INTI
	On November 12, 2003 which then amended on November 27, 2006, the Company entered
into an agreement with PT INTI for the construction and procurement of optical
network, as well as a network management system and other related services and
equipment, for Regional Division III (West Java) amounting to US$3.2 million and
Rp130,293 million. As of December 31, 2006, total purchase commitment amounting
Rp58,575 million.
(iii)	Ring JASUKA Backbone with NEC-Siemens Consortium
	On June 10, 2005, the Company entered into an agreement with NEC-Siemens Consortium
for the procurement and installation of an optical cable transmission of RING I (link
Jakarta Tanjung Pandan Pontianak Batam Dumai Pekanbaru Palembang
Jakarta) and RING II (link Medan Padang Pekanbaru Medan). The agreement has
been amended several times and the total contract based on the latest amendment dated
7 February 2007 amounting to US$45 million and Rp156,855 million. This agreement is
based on a turnkey arrangement. As of December 31, 2006, total purchase commitment
amounting Rp2,444 million.
(iv)	Expansion NSS, BSS and PDN FWA CDMA System Project in Regional Division I
and IV with Huawei Consortium
	On January 6, 2006, the Company entered into a Partnership Agreement with Huawei
Consortium for FWA CDMA expansion Project NSS, BSS and PDN system in Regional
Division I and IV amounting to US$27.7 million and Rp150,234 million for period 3
years (2006-2008) with option of 2 years extension (2009-2010) amounting to US$12.3
million and Rp39,972 million. Huawei consortium will provide service and maintenance
support that it constructs, pursuant to a Service Level Agreement, for period of 3
years (2006-2008) in return for a consideration of Rp10,450 million. As of December
31, 2006, total purchase commitment amounting US$40 million and Rp190,206 million.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(v)	CDMA 2000 IX in Regional Division V with PT Samsung Telecommunication Indonesia
	On June 8, 2006, which was amended on August 1, 2006 and later on December 18, 2006,
the Company entered into an agreement with PT Samsung Telecommunication Indonesia for
Procurement and Installation of CDMA 2000 IX in Regional Division V (East Java)
amounting to US$8.4 million plus Rp12,008 million. As of December 31, 2006, total
purchase commitment amounting US$0.8 million and Rp12,008 million.
(vi)	Expansion of Submarine Cable System Capacity Surabaya-Ujung
Pandang-Banjarmasin with NEC Corporation
	On August 16, 2006, the Company entered into an agreement with NEC Corporation for
Expansion of Submarine Cable System Capacity SurabayaUjung PandangBanjarmasin
amounting to US$6.7 million plus Rp8,132 million. The payment will be made based on
100% of contract value for each sub-system after Acceptance Report-1 issued by the
Company. As of December 31, 2006, total purchase commitment amounting US$6.7 million
and Rp8,132 million.
(vii)	PSTN Interface Expansion and Enhancement in 114 locations with PT Siemens Indonesia
	On September 27, 2006, the Company entered into a procurement and installation
agreement with PT Siemens Indonesia for the PSTN Interface Expansion and Enhancement
in 114 locations amounting to Rp229,900 million. The payment will be made based on
the completion in each location which is 100% of lump-sum price for the location. As
of December 31, 2006, total purchase commitment amounting Rp187,144 million.
(viii)	Expansion NSS, BSS and PDN FWA CDMA System Project in Regional Division V with
Samsung Consortium
	On October 13, 2006, the Company entered into a procurement and installation
agreement with Samsung Consortium for Expansion NSS, BSS and PDN FWA CDMA System
Project in Regional Division V (East Java) amounting to US$59.9 million plus Rp94,759
million. Samsung Consortium will provide service and maintenance support that it
constructs, pursuant to a Service Level Agreement for period 3 years (2006-2008) in
return for a consideration of Rp29,998 million. As of December 31, 2006, total
purchase commitment amounting US$59.9 million and Rp124,757 million.
(ix)	Expansion NSS, BSS and PDN System Project in Regional Division VI with ZTE Consortium
	On November 28, 2006, the Company entered into a procurement and installation
agreement with ZTE Consortium for Expansion NSS, BSS and PDN System Project in
Regional Division VI (Kalimantan) amounting to US$22.5 million plus Rp57,168 million.
ZTE Consortium will provide service and maintenance support that it constructs,
pursuant to a Service Level Agreement, for period 3 years (2006-2008) in return for a
consideration of Rp8,925 million. As of December 31, 2006, total purchase commitment
amounting US$22.5 million and Rp66,093 million.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

| (x) | Interface Expansion V.52, E1, Circuit, E1 PRA, CCS#7, CLIP and Enhancement
PSTN Central 5ESS Project with PT Lintas Teknologi Indonesia |
| --- | --- |
| | On November 29, 2006, the Company entered into a procurement and installation
agreement with PT Lintas Teknologi Indonesia for Interface Expansion V.52, E1,
Circuit, E1 PRA, CCS#7, CLIP and Enhancement PSTN Central 5ESS Project amounting to
Rp69,795 million. As of December 31, 2006, total purchase commitment amounting
Rp38,305 million. |
| (xi) | Optical Access Network (OAN) Project Batch III in Regional Division IV
with Huawei Consortium |
| | On November 30, 2006, the Company entered into a procurement and installation
agreement with Huawei Consortium for Optical Access Network (OAN) Project Batch III
in Regional Division IV (Central Java and Daerah Istimewa Yogyakarta) amounting to
US$3.2 million plus Rp64,776 million. As of December 31, 2006, total purchase
commitment amounting US$3.2 million and Rp64,776 million. |
| (xii) | Expansion NSS, BSS and PDN System Project in Regional Division II with
Huawei Consortium |
| | On December 8, 2006, the Company entered into a procurement and installation
agreement with Huawei Consortium for Expansion NSS, BSS and PDN System Project in
Regional Division II (Jakarta) amounting to US$25.3 million plus Rp131,045 million.
Huawei Consortium will provide service and maintenance support that it constructs,
pursuant to a Service Level Agreement for period 3 years (2006-2008) in return for a
consideration of Rp11,509 million. As of December 31, 2006, total purchase commitment
amounting US$25.3 million and Rp142,554 million. |
| (xiii) | Expansion NSS, BSS and PDN System Project in Regional Division III with Huawei
Consortium |
| | On December 8, 2006, the Company entered into a procurement and installation
agreement with Huawei Consortium for Expansion NSS, BSS and PDN System Project in
Regional Division III (West Java and Banten) amounting to US$9.8 million plus
Rp55,261 million. Huawei Consortium will provide service and maintenance support that
it constructs, pursuant to a Service Level Agreement, for period 3 years (2006-2008)
in return for a consideration of Rp4,217 million. As of December 31, 2006, total
purchase commitment amounting US$9.8 million and Rp59,478 million. |
| (xiv) | Optical Access Network (OAN) Project Batch IV in Regional Division VI
with Alcatel Inti Consortium |
| | On December 18, 2006, the Company entered into a procurement and installation
agreement with Alcatel-Inti Consortium for Optical Access Network (OAN) Batch IV in
Regional Division VI (Kalimantan) amounting to US$3.7 million plus Rp70,022 million.
As of December 31, 2006, total purchase commitment amounting US$3.7 million and
Rp70,022 million. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

COMMITMENTS (continued)

a. Capital Expenditures (continued)

| (xv) | Optical Access Network (OAN) Project Batch I in Regional Divison I and
III with Opnet-Olexindo Consortium |
| --- | --- |
| | On December 29, 2006, the Company entered into a procurement and installation
agreement with Opnet Olexindo Consortium for OAN Project Batch I in Regional
Division I and III amounting to US$3.0 million and Rp67,288 million. As of December
31, 2006, total purchase commitment amounting to US$3.0 million and Rp67,288 million. |
| (xvi) | Optical Access Network (OAN) Project Batch II in Regional Division II
with Opnet-Olexindo Consortium |
| | On December 29, 2006, the Company entered into a procurement and installation
agreement with Opnet-Olexindo Consortium for OAN Project Batch II in Regional
Division II (Jakarta) amounting to US$4.0 million plus Rp61,355 million. As of
December 31, 2006, total purchase commitment amounting to US$4.0 million and Rp61,355
million. |
| (xvii) | Ring JDCS (Jember-Denpasar Cable System) with ZTE Consortium. |
| | On December 29, 2006, the Company entered into a procurement and installation
agreement with ZTE Consortium for ring JDCS (Jember-Denpasar Cable System) amounting
to US$10.2 million and Rp16,136 million. As of December 31, 2006, total purchase
commitment amounting US$10.2 million and Rp16.136 million. |

b. Borrowings and other credit facilities

| (i) | Telkomsel has a combined US$20 million facility with Standard Chartered
Bank, Jakarta for import L/C, bank guarantee, standby L/C and foreign exchange. The
borrowing facility expires in December 2006 and has been rolled over up to December
2007. Under the facility, at December 31, 2006, Telkomsel has issued bank guarantees
totaling Rp120 billion (equivalent to US$13.3 million). The bank guarantees consists
of guarantees for the import facility and 3G performance bond (Note 51c(ii))
amounting to Rp100 billion and Rp20 billion, respectively. Borrowings under the
facility bear interest at SIBOR plus 2% per annum (US$), and at a rate equal to the
three-month Bank Indonesia certificate plus 2% per annum (Rupiah); for other
currencies the interest rate is based on the bank cost of funds plus 2%. As of
December 31, 2005 and 2006, there were no outstanding loans under this facility. |
| --- | --- |
| (ii) | The terms of the various agreements with Telkomsels lenders and financiers
require compliance with a number of pledges and negative pledges as well as financial and
other covenants, which include inter alia, certain restrictions on the amount of
dividends and other profit distributions which could adversely affect Telkomsels
capacity to comply with its obligation under the facility. The terms of the relevant
agreements also contain default and cross default clauses. Management of Telkomsel is
not aware of any breaches of the terms of these agreements and does not foresee any
such breaches occurring in the future. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

COMMITMENTS (continued)

c. Others

(i)	Employee Benefits
	On March 24, 2006, Telkomsel and its Labour Union (Serikat Pekerja Telkomsel) signed
a collective labour agreement which is valid until March 23, 2008. Based on the
agreement, Telkomsel shall provide Long Service Leave and Post Retirement Insurance
to its employees. Those benefits are subject to further agreement between Telkomsel
and Labour Union which has not been made until the date of this report. Accordingly,
it is not possible to determine the amount of the benefits as of December 31, 2006.
(ii)	3G License
	With reference to Decision Letter No. 07/PER/M.KOMINFO/2/2006 of the Minister of
Communication and Information Technology, as one of the successful bidders,
Telkomsel amongst other requirements, is required to:

Pay an annual right of usage (BHP) fee which is determined based on a certain formula over the license term of 10 years. The BHP for the first year was paid in March 2006. The commitments as of December 31, 2006 arising from the BHP up to the expiry period of the license using the formula set forth in the decision letter are as follow:

Year	BI Rates (%)	Index (multiplier)	Radio Frequency Usage — Tariff
1			20% x HL
2	R1	I1 = (1 + R1)	40% x I1 x HL
3	R2	I2 = I1(1 + R2)	60% x I2 x HL
4	R3	I3 = I2(1 + R3)	100% x I3 x HL
5	R4	I4 = I3(1 + R4)	130% x I4 x HL
6	R5	I5 = I4(1 + R5)	130% x I5 x HL
7	R6	I6 = I5(1 + R6)	130% x I6 x HL
8	R7	I7 = I6(1 + R7)	130% x I7 x HL
9	R8	I8 = I7(1 + R8)	130% x I8 x HL
10	R9	I9 = I8(1 + R9)	130% x I9 x HL

Notes :

Ri	=	average Bank Indonesia rate from previous year
HL (auction price)	=	Rp 160 billion
Index	=	adjustment to the bidding price for respective year

| | The BHP is payable upon receipt of Surat Pemberitahuan Pembayaran (notification letter) from the Directorate General of Post and
Telecommunication. |
| --- | --- |
| 2. | Provide roaming access for the existing 3G operators |
| 3. | Contribute to USO development |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

COMMITMENTS (continued)

c. Others (continued)

(ii) 3G License (continued)

Construct a 3G network which cover at least the following provinces:

	Minimum number
Year	of provinces
1	2
2	5
3	8
4	10
5	12
6	14

Issue a performance bond each year amounting to Rp20 billion or 5% of the annual fee to be paid for the subsequent year, whichever is higher. Such performance bond shall be redeemed by the Government if Telkomsel is not able to meet the requirements set out in the above mentioned decision letter or upon cancellation/termination of the license, or if Telkomsel decides to return the license voluntarily.
CONTINGENCIES

| a. | In the ordinary course of business, the Company has been named as a defendant in
various legal actions in relation with land disputes, other disputes involving premium
call billing and telecommunication billing. Based on managements estimate of the
probable outcomes of these matters, the Company accrued Rp33,116 million as of December
31, 2005 and 2006. |
| --- | --- |
| b. | On August 13, 2004, the Commissions for Business Competition Watch (Komisi Pengawas
Persaingan Usaha, KPPU) issued a verdict with its dictum stating that the Company had
breached article 15 verse (3) and article 19 verse a and b of Law No.5/1999 on Anti
Monopolistic Practices and Unfair Business Competition (Competition Law). As
consequences, KPPU has dropped the agreement clauses between the Company and Warung
Telkom (kiosk) provider which stated that Warung Telkom provider can only sell the
Companys telecommunication service and/or product. KPPU subsequently ordered the Company
to open the channel of international calls to other international call operators in
Warung Telkom. Pursuant to the KPPU verdict, the Company has filed an objection to
District Court of Bandung which then issued a verdict on December 7, 2004 that granted
the Companys objection and dropped the KPPUs verdict on August 13, 2004. On January 4, 2005, KPPU filed an appeal to the Indonesian
Supreme Court. On January 15, 2007, the Indonesian Supreme Court issued a verdict which
granted the KPPUs appeal and dropped the verdict of District Court of Bandung. The
Company believes that there is no significant losing revenue impact. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONTINGENCIES (continued)

| c. |
| --- |
| A former Director of Human Resources and an employee of the Company were indicted under
the anti-corruption law in Bandung District Court relating to allegations of misuse of
authority in producing consultancy services resulting in losses of Rp789 million. On May
2, 2007, the Bandung District Court found the defendants guilty and sentenced each
defendant to a one-year prison term and given Rp50 million for penalty. The defendant
have filed and appeal with the West Java High Court objecting to the District Court
ruling. As of the date of the consolidated financial statements, no decision has been
reached on appeal. |
| On January 2, 2006, the Office of the Attorney General launched an investigation into
allegations of misuse of telecommunications facilities in connection with the provision
of VoIP services, whereby one of Companys former employees and four of the Companys
employees in KSO VII were named suspects. As a result of the investigations, one of
Companys former employees and two of the Companys employees were indicted in the
Makassar District Court, and two other employees were indicted in the Denpasar District
Court for their alleged corruption in KSO VII. As of the date of the consolidated
financial statements, the District Courts have not issued their verdicts. |

The Company does not believe that any subsequent investigation or court decision will have significant financial impact to the Company.

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

53.
The balances of monetary assets and liabilities denominated in foreign currencies are as
follows:

Foreign		Foreign
Currencies	Rupiah	Currencies	Rupiah
(in millions)	Equivalent	(in millions)	Equivalent
Assets
Cash and cash equivalents
U.S. Dollar	81.96	805,489	159.59	1,443,160
Euro	59.14	689,472	71.30	845,448
Japanese Yen			1.95	148
Trade receivables
Related parties
U.S. Dollar	1.64	16,112	0.93	8,327
Third parties
U.S. Dollar	19.46	191,199	40.10	360,420
Other receivables
U.S. Dollar	0.30	2,910	0.56	5,077
Euro	0.01	88	0.03	402
Great Britain Poundsterling				37
Other current assets
U.S. Dollar	13.63	133,926	0.10	937
Advances and other non-current
assets
U.S. Dollar	2.25	22,162	3.59	32,314
Escrow accounts
U.S. Dollar	12.89	126,128
Total assets		1,987,486		2,696,270

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)


Foreign			Foreign
Currencies	Rupiah		Currencies	Rupiah
(in millions)	Equivalent		(in millions)	Equivalent
Liabilities
Trade payables
Related parties
U.S. Dollar	15.09	148,423	0.28	2,501
Singapore Dollar				20
Third parties
U.S. Dollar	125.40	1,233,050	28.58	257,495
Euro	68.30	796,343	1.55	18,377
Japanese Yen	66.03	5,508
Singapore Dollar	0.01	33	0.41	2,411
Great Britain Pound Sterling		14	0.04	630
Myanmar Kyat				12
Other payables
U.S. Dollar			0.06	573
Great Britain Pound Sterling				2
Accrued expenses
U.S. Dollar	21.01	206,639	199.18	1,793,609
Euro	8.79	102,509	104.61	1,239,946
Japanese Yen	52.85	4,433	74.13	5,610
Singapore Dollar	0.42	2,497	0.35	2,039
Advances from customers
and suppliers
U.S. Dollar	0.15	1,474
Current maturities
of long-term liabilities
U.S. Dollar	150.43	1,479,401	142.84	1,286,306
Euro	14.67	171,087	14.68	173,996
Japanese Yen	1,142.91	95,876	1,142.91	86,496
Long-term liabilities
U.S. Dollar	662.39	6,514,501	523.76	4,716,467
Euro	22.01	256,631	7.34	86,998
Japanese Yen	14,384.68	1,206,700	13,241.77	1,002,137
Total liabilities		12,225,119		10,675,625
Net liabilities		(10,237,633	)	(7,979,355	)

| The Company and subsidiaries activities expose it to a variety of financial risks,
including the effects of changes in debt and equity market prices, foreign currency exchange
rates and interest rates. |
| --- |
| The Company and subsidiaries overall risk management program focused on the unpredictability
of financial markets and seeks to minimize potential adverse effects on the financial
performance of the Company and subsidiaries. Management provides written policy for foreign
currency risk management mainly through time deposits placement and hedging to cover foreign
currency risk exposure for the time range of 3 up to 12 months. |

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PERUSAHAAN PERSEROAN (PERSERO) P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

SUBSEQUENT EVENT

| a. | On February 2, 2007, Jakarta and the area of Regional Division II (Jakarta)
were massively flooded. At the date of issuance of these consolidated financial
statements, the Company and subsidiaries are still calculating loss resulting from that
catastrophe. The damaged telecommunication infrastructures have been covered by
insurance. |
| --- | --- |
| b. | On March 6, 2007, based on notarial deed No. 3 of Titien Suwartini, S.H. and
approved by Ministry of Justice and Human Rights in its decision letter No.
W8-00573.HT.01.04-TH.2007 in relation to the amendment of the Companys Articles of
Association, the name of PT Aria West International, a subsidiary, has been changed to
PT Telekomunikasi Indonesia International. At the same time, its business operation has
been expanded to include international businesses. All changes have been approved by
Capital Investment Coordinating Board in its decision letter No. 20/III/PMDN/2007 dated
March 1, 2007. |
| c. | On April 27, 2007, the Company became a member of Asia-America Gateway (AAG)
consortium by signing Construction and Maintenance Agreement (C&MA) and Supply Contract
with AAG. AAG is an undersea cable consortium comprising 19 companies. The Company paid
US$30 million to be the part of AAG consortium. Through AAG, the Company will acquire
30 Gbps international bandwith at the end of 2008 in the AAG configuration that will be
laid from Malaysia to the United States. |

| 55. |
| --- |
| PSAK 50 (Revised 2006), Financial Instruments: Presentations and Disclosures. In December
2006, the Financial Accounting Standard Board in Indonesia issued PSAK 50 (Revised 2006),
Financial Instruments: Presentations and Disclosures which amends PSAK 50, Accounting for
Investments in Certain Securities. PSAK 50 (Revised 2006) gives guidance on how to disclose
and present financial instruments in the financial statements and whether a financial
instrument is a financial liability or an equity instrument. This Standard applies to the
classification of financial instruments, from the perspective of the issuer, into financial
assets, financial liabilities and equity instruments; the classification of related
interest, dividends, losses and gains; and the circumstances in which financial assets and
financial liabilities should be offset. PSAK 50 (Revised 2006) complements the principles
for recognizing and measuring financial assets and financial liabilities in PSAK 55 (Revised
2006). PSAK 50 (Revised 2006) shall be effective after January 1, 2009. It is not expected
that the adoption of PSAK 50 (Revised 2006) will have material effect on the Companys
consolidated financial statements. |
| PSAK 55 (Revised 2006), Financial Instruments: Recognition and Measurement. In December
2006, the Financial Accounting Standard Board in Indonesia issued PSAK 55 (Revised 2006),
Financial Instruments: Recognition and Measurement which amends PSAK 55 (Revised 1999),
Accounting for Derivatives Instruments and Hedging Activities. PSAK 55 (Revised 2006)
provides guidance on how to recognize, measure and derecognize financial asset and liability
including derivative instruments. It also provides guidance on the recognition and
measurement of sales and purchase contracts of non-financial items. PSAK 55 (Revised 2006)
shall be effective after January 1, 2009. It is not expected that the adoption of PSAK 55
(Revised 2006) will have material effect on the Companys consolidated financial statements. |

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